Traditional approaches to work and earning an income are evolving, and with the cost of living continually rising, many people are now looking for ways to make some extra cash outside of their main job. If that applies to you, you may be wondering whether you need to pay tax on those earnings.

HM Revenue & Customs (HMRC) has launched a new campaign aimed at clarifying whether you need to inform them about your side hustle earnings to avoid any unexpected surprises.

The guidance explores five different types of side hustle. Here, we briefly review them and outline what you need to know.

  1. I’m buying or making things to sell If you sell items you make (including digital creative products), upcycle furniture to sell, or buy goods to resell at a higher price, HMRC would consider you to be trading.
  2. I’ve got a side gig Side gigs can take many forms, such as providing car repairs, making deliveries, dog walking, gardening, or tutoring. Even if this work is done in your spare time, if it is regular and continues for a few months, HMRC would likely consider it to be trading.
  3. I work for myself doing multiple jobs If you earn a living from undertaking multiple jobs, you could be classed as trading and may need to register as a sole trader.
  4. I’m a content creator or influencer What may have started as a hobby could now be generating income. If you are paid to do sponsored social media posts for a brand or receive ad revenue from your online videos or blog, HMRC will consider you to be trading.

How much can you earn from trading before you need to inform HMRC? If you earn £1,000 or less in a tax year, you will not need to pay any tax on it. However, if you earn more than £1,000, you must inform HMRC and may need to pay tax.

It is important to note that this £1,000 limit is a single allowance that applies to your combined trading income. Unfortunately, you do not receive a separate allowance for each type of income.

Some may believe that if you sell fewer than 30 items a year, you do not need to pay tax, but this is incorrect. Online platforms are required to share some information with HMRC if you sell more than 30 items in a year, but this does not necessarily mean you will need to pay tax. You may still be liable for tax even if you sell fewer than 30 items. The key question is whether your earnings exceed £1,000.

However, if you are simply selling some unwanted belongings occasionally, it is unlikely that you will need to pay any tax on this.

There is one other type of side hustle income that may require you to inform HMRC, but different rules apply.

  1. I rent out my property This could include running a holiday let, renting a spare room, or letting out a property through an app.

If you rent out a spare room, you may be covered by the £7,500 Rent a Room Scheme allowance.

If you rent out a property that you do not live in, you also have a property allowance of £1,000. If your rental income exceeds this amount, you may need to pay tax on it.

It is worth noting that you can use the £1,000 trading allowance as well as the Rent a Room Scheme and property allowance.

If you need help determining whether you need to pay tax on your side hustle, please get in touch with us. We would be happy to assist you!

For more information on HMRC’s tax guidance for side hustles, visit: https://taxhelpforhustles.campaign.gov.uk