‘Side hustle tax’ is much ado about nothingby
Emma Rawson takes a look at how the introduction of new reporting rules for digital platforms led to confusion and consternation amongst online sellers.
The first week of 2024 was an unexpectedly busy time for tax news, with new reporting rules for digital platforms widely – and wrongly - reported as a new tax on ‘side hustles’. This misinformation was then amplified on social media, causing many individuals to unnecessarily worry that they could end up with a tax bill.
So what is actually happening, what went wrong and what can we learn from the whole episode?
The new reporting rules
As Philip Fisher discussed in his article earlier this month, from 1 January 2024, digital platforms will have to make annual reports to HMRC about those who sells goods or services through them.
For these purposes, a digital platform is any website or app that facilitates transactions between sellers and their customers. This can include individuals selling goods on eBay, Etsy, Vinted etc. but also those providing services or letting out property.
The rules are part of a global initiative by the OECD. In the UK, platforms will be required to report information to HMRC on all registered sellers, except those with fewer than 30 transactions a year and earning no more than 2,000 euros. Information to be reported will include the identity of sellers, as well as what they have earned and their bank account details.
A tax on side hustles?
Misleading reporting - including by some major outlets - resulted in these reporting rules being badged as the introduction of a new ‘side hustle tax’. Concerned individuals took to social media to ask whether this meant that they would have to pay tax when selling their second hand clothes or clearing out the attic. Others complained that the situation was unfair and could amount to double taxation.
There is, however, no new tax on side hustles (and no plans to introduce one). The platform reporting rules will provide a significant amount of extra information to HMRC, but there is no change to the underlying rules as to when individuals selling online are subject to tax.
Instead, to determine if online sales can lead to a tax liability we need to go back to first principles and ask is there a trade? AccountingWEB readers - unlike many journalists and social media commentators - will be familiar with the badges of trade. Without getting into the details, selling unwanted personal possessions is unlikely to constitute a trade. However, individuals who are buying or making things with a view to selling them for a profit are likely to be trading.
Even if there is a trade, tax will only be payable if a profit is made. The trading and property allowances also allow taxpayers to earn up to £1,000 a year of gross income before any tax becomes due. As a result, many platform sellers will never have to worry about their activities creating a tax liability.
In an attempt to dispel the myths about the new ‘side hustle tax’ and reassure sellers, tax experts took to social media, radio and TV. The ATT and the Low Incomes Tax Reform Group (LITRG) published explainers covering what the new rules do (and don’t do), and HMRC also quickly published a new information sheet on selling online and paying taxes.
What can we learn from this?
January can be an odd month for news, but I don’t think many would have expected an OECD-led reporting initiative to cause such a splash.
Inaccurate reporting of the new changes was undoubtedly a driver. It seems that many journalists are unfamiliar with even the basics of taxation, and will naturally go for an exciting attention grabbing headline over the rather more dull truth.
Social media also played a role. As well as quickly spreading the myth of a new ‘side hustle tax’, some truly terrible advice cropped up - for example, suggesting that sellers might be entitled to loss relief if they sold personal possessions for less than they paid for them. A reminder, if one were needed, why we should never take tax advice from social media.
Another issue brought into focus is the low level of tax knowledge amongst the general public. Whilst this is unfortunate, it is perhaps unsurprising. For many individuals their only interaction with the tax system is seeing amounts deducted from their payslip each month under PAYE. This, combined with a fear of getting things wrong and being pursued by HMRC, can lead to unnecessary worries.
Hopefully the combined efforts of the tax profession and HMRC have now put this story to rest. However, we should all be aware of the problems misreporting and miscommunication can cause when it comes to tax.
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Emma a technical officer with the Association of Tax Technicians (ATT). Her background is in corporation tax and she also has a focus on VAT.
She trained with Deloitte, working in both their London and Leeds offices, and also spent a short time working in a specialist consultancy firm providing advice to other practitioners before joining...