Home / News / Got a Side Hustle? Here’s What You Need to Know to Prepare for HMRC’s Gig Economy Crackdown This Tax Season

Got a Side Hustle? Here’s What You Need to Know to Prepare for HMRC’s Gig Economy Crackdown This Tax Season

12 December 2023

With the cost of living on the rise in the UK, many people are turning to side jobs to supplement their income. The gig economy is booming, and millions of people are increasingly reliant on side hustles such as selling on Etsy, driving for Uber or Deliveroo, or earning rental income on a spare room on Airbnb, but with these independent earning opportunities come new responsibilities.

Earlier in 2023, the government announced changes in UK tax laws meaning that if you’re self-employed or earn more than £1,000 per tax year with your side job, you must file a self-assessment tax return. Platforms that hire gig workers will also be required to disclose their users’ annual income.

HMRC has dedicated £37 million and hired additional staff to track down and penalise those with unreported untaxed income, and you need to know how to remain compliant and avoid penalties. In this article, we’ll walk you through the essentials you need to know, so you can focus on making money without worrying about falling foul of HMRC.

What counts as self-employment income?

It’s essential to clarify whether you’re considered self-employed under HMRC self-assessment rules. According to GOV.UK, if you’re running a profitable activity in a regular and significant way, you are probably self-employed and must register for self-assessment to ensure you pay the correct income tax and national insurance. This includes having customers or clients, earning property income from renting a spare room or second home, selling goods or services and taking on work for payment.

It’s important to note that even if you already have a full-time job, if you earn extra money from a side job that meets the above criteria, you’re still considered self-employed, and therefore must register for self-assessment with HMRC, file a self-assessment tax return, and pay tax.

How much can you earn before paying tax?

The government has allowed all taxpayers to earn up to £1,000 tax-free each year through trading, which includes any sort of self-employment, so you don’t have to let HMRC know if you earn less than this amount. If, however, your income surpasses £1,000 per year, you must notify HMRC and file a tax return – even if you don’t owe any tax.

It’s worth remembering that if your earnings from self-employment and your income from employment add up to more than your personal allowance, which is £12,570 for the 2022-23 and 2023-2024 tax years, you must pay income tax and national insurance contributions on the surplus.

When should you register for self-assessment?

If you earn an income of more than £1,000 per tax year on your side job, you need to register for self-assessment with HMRC and file a self-assessment tax return. It’s crucial to note that even if you earn less than that amount, it may still be beneficial to register since you can claim tax relief back on expenses related to your self-employment against your tax bill.

The deadline for registering for self-assessment is October 5th following the end of the tax year. For example, the deadline to register for self-assessment for 2022-23 was 5 October 2023. If you planned to file a paper tax return for tax year 2022-23, the deadline for doing so was 31 October 2023.

You still have until 31 January 2024 to file an online self-assessment tax return and pay your tax bill. You should create a Government Gateway account to determine if you need to register for self-assessment, generate your unique taxpayer reference, and use your online account to pay your tax bill using direct debit or a bank transfer.

What happens if you miss the self-assessment deadlines?

If you are considered self-employed for tax purposes and meet the legal requirement to file a self-assessment tax return for the tax year 2022-23 but did not register with HMRC for self-assessment by 5 October, you may face penalties. The exact penalties can vary depending on your circumstances and the amount of time that has passed since the self-assessment registration deadline.

Typically, HMRC imposes an initial late registration penalty of £100, which can increase over time if you continue to delay your self-assessment registration without a reasonable excuse. In addition to the initial penalty, you may also be subject to further fines or have to pay interest based on the amount of income tax owed and the length of the delay in registering.

It is crucial to meet registration deadlines for self-assessment tax returns and pay your tax bill promptly to avoid these penalties and any potential legal consequences. Therefore, it is advisable to seek professional advice from a tax solicitor and contact HMRC immediately if you have missed the registration deadline.

What expenses can you claim for?

When working out your taxable income, you can claim back any expenses incurred exclusively for your self-employment during the tax year. For instance, if you drive for Uber, you could claim back fuel and car maintenance costs. Keep receipts and bank statements and maintain digital records of all expenses throughout the year so that you can report them on your tax return when the tax season arrives. It’s worth looking into expenses that may be specific to your kind of work and don’t forget, if you’re registered for VAT, you can also reclaim any VAT you’ve paid on expenses.

Conclusion

With the gig economy growing ever more popular, there’s income to be made from your side job, but it’s essential to make sure you’re paying the right amount of income tax and not under-reporting your earnings.

If you can be classed as self-employed and earn over £1,000 per tax year from your side job, you need to complete a self-assessment tax return with HMRC. Registering for self-assessment, keeping records of your expenses, and taking advantage of VAT reclaim where applicable can help you keep on top of your tax affairs.

If you have any questions about filing your self-assessment tax return or other concerns about your side business, Redkite Solicitors is here to help. Remember, the goal is to make the most of your side job while operating within the law. With some careful consideration and planning, it’s entirely possible to turn your side job into a viable source of secondary income without any tax troubles.