A new regulation will be rocking the side hustle industry in 2024.
As part of a national initiative to curb tax evasion, digital platforms will be mandated to share user information with HMRC come 1st January 2024.
Regardless of whether it’s a side gig supplementing your main income or a full-fledged venture, ensuring compliance with UK laws is now paramount. As side hustling continues to grow, it was only a matter of time before HMRC would want its slice of the pie.
Here’s how you can navigate the changes.
The new side-hustle rules
The new rules come into force right at the pin drop of the new year, so now is the time to get your (literal and figurative) shop in order.
Anyone using digital platforms to engage in a ‘side hustle’ will find their financial details laid bare before HMRC in a faster and more accessible way than ever before.
The “digital platforms” include everything from your website provider to your third-party seller, to any of the other tools you use to help you sell your stuff. So, whether you’re listing your spare room on Airbnb, showcasing your crafts on Etsy, or running your own ecommerce site, these are the spots that might have to share a bit of info with HMRC.
These are some websites that may be included (but not limited to):
HMRC will now also have easier access to your bank account and bank details.
The threshold for action is set at earning more than £1,000 in your side hustle. Once this milestone is reached, registering as self-employed becomes mandatory.
Reaching £1000 isn’t a problem for the majority of side-hustlers, according to data: While many people view side hustles as a way to generate a bit of cash without leaving their full-time job, research from website builder GoDaddy shows that the average moonlighter earns a whopping £22,900 a year in supplemental income.
Also, fear not – the taxman won’t come knocking until your earnings surpass £12,570.
(For an in-depth exploration of business tax rules and deadlines, check out this comprehensive article.)
Four steps for side hustlers to take before Jan 2024
From the Airbnb host with a spare room to the burgeoning dropshipper with a flair for online sales, don’t think you can escape the long arm of the tax law. Get pratical and get prepared now.
1. Register for self-assessment
If your side hustle yields more than £1,000 annually, your first port of call is registering for self-assessment.
It’s crucial to promptly declare any earnings you might have missed out on reporting. Taking the initiative to disclose unreported income can actually result in lighter penalties.
On the flip side, if HMRC comes to find out through an investigation, the fines could be much steeper.
2. Explore tax write-offs
Assess your eligibility for tax write-offs, especially if your side hustle involves working from home.
In certain scenarios, what might seem like a simple side gig could be considered a full-fledged business, opening avenues for deductible expenses.
3. Consult professionals
Connecting with specialised professionals like accountants, legal experts and financial advisors can offer customised guidance on taxes, deductions, and how to organise your finances better. This tailored advice not only simplifies your financial procedures but also ensures alignment with legal requirements.
Similarly, legal professionals with experience in this sector provide invaluable insights into regulations, contracts, and potential risks, shielding your venture from legal complexities and ensuring you operate within the permissible boundaries of your side hustle.
(At the very least, it would be advisable to look into getting yourself some quality accounting software…)
4. Know your allowances
As mentioned above, you still benefit from a personal tax allowance of £12,570, tax-free. Registration only becomes mandatory when your earnings hit the £1,000 mark.
This threshold signifies a viable business with legitimate potential for future growth and customer acquisition.
This year Jeremy Hunt assured the nation in his Autumn Statement that businesses in their first year would be entitled to something called ‘full expensing’. Full expensing is a 100% first-year tax allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure.
The allowance will help businesses to reduce corporation tax bills, but it is only available to limited companies who pay corporation tax.
So perhaps – it might be a good time to take the plunge and convert your business model into a fully-fledged small business. What do you think?
Conclusion
In the realm of side hustles, staying ahead of regulatory changes is as crucial as maximising your earning potential.
Registering your business not only aligns you with the law but also positions you for long-term success. Don’t let new rules catch you off guard – take charge of your business journey today.
