Why the ‘side-hustle tax’ isn’t as controversial as it sounds

New rules came into effect in January regarding online selling platforms, but ordinary people are less likely to be affected than some have implied.

There’s been a flurry of reports in the media recently of a so-called ‘side hustle tax’ following HMRC’s crackdown on online sellers and traders using online marketplaces as a side hustle.

Under the new rules which came into effect in January, online selling platforms such as eBay, Vinted, Etsy and Airbnb will be required to collect, share and report details of transactions as well as sellers’ income to HMRC.

The rules relate to the sales of goods including second-hand or handmade clothes or items as well as services and holiday lets.

But media coverage hasn’t been entirely clear as to who is likely to be affected and crucially, what the new rules actually are. Some reports have suggested it is a new tax which will affect anyone selling items on eBay, including those who are using online marketplaces to simply declutter.

In reality, the only change is the requirement for online marketplaces to share income and transaction data about their sellers. There is an existing threshold for earnings from side-hustles, set at £1,000 which will now be easier to enforce. Anyone earning above this from online sales and who has subsequently profited must register as self-employed and file a self-assessment. Income from online sales which are below £1,000 do not need to be declared.

HMRC has also sought to clarify the new regulations:

• Goods or services sold online are only taxable if the seller is a trader and/or is making a profit.
• The £1,000 trading allowance threshold applies to those selling goods which have been purchased purely for resale with the intention of profit/capital gain.
• However, those selling unwanted goods will not need to pay tax on sales of their goods, even if the value exceeds £1,000, provided these items have previously been for personal use. These items are therefore not part of an individual’s income/earnings. For example, selling a personal car for £25,000 will not need to be declared to HMRC.

We spoke to accountants across the UK for further clarification on the issue as well as their views on how it’s been handled.

Sellers who earned above the trading allowance prior to 2024 need to pay tax retrospectively to avoid penalties

Jess Long, Senior Private Tax Consultant, Monahans

The new rules require platforms like eBay, Uber and Airbnb to report detailed information about their income directly to HMRC. Previously, HMRC requested revenue figures on an ad-hoc basis, but the new rules will require these platforms to report this information as part of their general affairs.

In particular:

Overseas entities will also be required to report this information directly to HMRC, which will impact those who are selling items abroad using online marketplaces, as well as those who rent out properties, such as holiday lets, overseas.

The trading allowance allows people selling a few items to earn up to £1,000 per year tax-free. However, if an individual’s income goes over the annual allowance, even by just 1p, they must declare this to HMRC and will likely need to complete a self-assessment tax return to pay what they owe.

HMRC has also announced that those earning over the £1,000 allowance in previous years will also be expected to file a tax return retrospectively and pay tax due – or face penalties.

Verdict: Sellers who earned over £1,000 in previous years will be required to file a tax return and pay tax retrospectively, or face penalties.

Those clearing out their storage are unlikely to be targeted

Julie Pocock MAAT, Director, Kingfisher Services

Despite headlines and media reports, there is no new ‘side hustle tax’. The only thing which has changed is that digital selling platforms such as eBay, Facebook Marketplace, Airbnb etc must share the details of their users with HMRC.

This means that those online sellers and traders who do not declare their income are more likely to be caught.

If you are trading and make over £1,000 turnover (not profit) during a tax year, you must declare your income to HMRC via a self-assessment tax return. This is a strict amount and there is no buffer.

If you are buying goods in, making items to sell online, or renting out property (even your driveway!) then you are likely to be classed as ‘trading’ and the rules will apply to you, too.

If, however, you are selling the odd item on Ebay or Facebook Marketplace to clear out your loft or garage, you are unlikely to be classed as trading and the rules will not apply to you.

HMRC have posted on their Social Media channels about this change and what it means, yet I’m unsure if this will be enough for people to realise and understand how the changes will affect them. I believe HMRC should be promoting this change more widely.

Verdict: HMRC’s social media posts about changes affecting side-hustle traders won’t be enough to raise awareness. People selling odds and ends online don’t need to worry.

Anyone whose goods fit with HMRC ‘badges of trade’ will need to pay tax on earnings

Emily Coltman, Chief Accountant, FreeAgent, Central

HMRC now requires online platforms like eBay, Vinted and so forth to share data about who’s selling how much through their sites.

However, the rules about who has to pay tax when they make sales through these platforms have not changed – there is no new ‘side-hustle tax’.

If you are making sales (before any fees or costs are taken off) of over £1,000 a year, then you need to consider whether what you’re selling counts as a trade. If it does and fits with HMRC’s ‘badges of trade’, then you need to register as self-employed, fill in a tax return, report this income to HMRC and potentially pay tax and NI on it.

The ‘badges of trade’ include such points as:

• Are you intending to make a profit?
• How did you acquire what you’re selling?
• Did you buy the goods you’re selling with the intent to sell them for a profit?
• Did you or your family ‘enjoy’ the goods before selling them?

There has been a good deal of media coverage of this but it’s fair to say that not everybody will know the rules.

Verdict: Sellers should consider if what they’re selling fits with HMRC ‘badges of trade’. If so, they’ll need to file a tax return and pay tax on their earnings.

The changes are to ensure traders pay the right taxes

Laura Day-Henderson, Director, More Than Bookkeeping, and owner, Future Ready Consultancy Group

These changes won’t affect individual sellers who are decluttering or selling their unwanted items. You only have to declare revenue from trade. You can, therefore, sell your personal car for more than £1,000 on eBay and not declare it to HMRC.

The line is drawn when a seller purchases or makes items specifically to sell. Once this happens, they can earn up to £1,000 before they have to register as self-employed and pay tax. However, once they earn even just a penny over the threshold, they are required to declare the income to HMRC as it is now taxable.

To reiterate, income only needs to be declared if it exceeds £1,000. Personal tax allowance can be used against this income, but it just ensures all taxes are paid. By ensuring everyone pays their relevant taxes, the government hopefully won’t need to raise taxes for everyone else.

Verdict: These changes just ensure the right taxes are paid by traders – individuals who are decluttering won’t be affected.

Annie Makoff is a freelance journalist and editor.