10 things you need to know about changes to side-hustle tax in 2024
Find out why HMRC is cracking down on side-hustle earnings, and what you need to know and do about tax as a result.
From January 2024, HMRC has started clamping down on money earned from side-hustles like Ebay, Vinted, Etsy, Fiverr, Uber, Deliveroo and AirbnB.
Under the new changes, HMRC will ask side-hustle platforms to report how much money people make on them. These changes are part of wider regulations to combat tax avoidance, and won’t impact you if you are already reporting your income correctly with HMRC. But if you haven’t been declaring income, you will need to start going forward.
With one in six adults in the UK currently working a gig job, either part time or full time, these new rules will apply to a lot of workers.
While starting a side-hustle is a great way to boost your income, it is essential that you manage your finances effectively. If you believe that you might be affected by the new legislation, here are 10 key things to consider and do.
1) Register for Self-Assessment
If your side-hustle is generating more than £1,000 a year, your first step should be to register for Self-Assessment. Before you can complete and file your tax return you will need a unique taxpayer reference (UTR) and activation code which can take a while to receive.
2) Declare any previously earned income
There is nothing to stop HMRC backdating their investigations into earnings. So if you’ve earned money in the past from your side-hustle and failed to declare it, now is the time to do so.
This will avoid you having to pay potentially larger penalties if HMRC discovers the undeclared income as part of an investigation. You may wish to seek help from an accountant or financial advisor if you find yourself in this position.
3) Separate your business and personal finances
Open a separate bank account for your side-hustle. This will help you track income and expenses more accurately and also save time when filing your tax return. It will also give you a clearer picture of the success of your side-hustle going forward.
4) Budget and track expenses
Speaking of income, it’s a good idea to create a budget for both your personal and side-hustle expenses. Keep track of any expenses which relate to your side-hustle, including supplies, equipment, marketing costs and any other costs associated with running the business as these are tax deductible.
Not only will this help you when it comes to filing tax returns, but it will enable you to price your projects or services more easily and accurately, so you can ensure you are making enough profit.
5) Understand the tax implications of side-hustles
Be aware of the tax implications that come with running a side business. In the UK, if you earn more than £1,000 a year, whether it be from dog walking or selling kitsch crafts, then you have a requirement to report your income to HMRC.
If you are just selling the odd thing here and there, and don’t earn over £1,000 a year from them, you do not need to let HMRC know. If you are unsure whether you need to declare your earnings or not, you can contact HMRC’s income tax helpline.
The standard Personal Allowance is £12,570, which is the amount of income that you don’t have to pay tax on. If earnings from your side-hustle push your total annual earnings beyond this threshold, then it may be worth consulting with a tax professional.
6) Set financial goals
What you want to achieve with your side-hustle? Are you looking for some extra spending money, or hoping to eventually replace your full-time income?
Knowing your goals will help guide your financial decisions and better plan your time and actions. Think of yourself less as a solo-operator, and more as a mini business. This means identifying the goals you are working towards, and what you need to get there.
With clear financial goals to work towards, you’ll be able to identify what pricing you need to charge, how often you’ll need to work/how much you need to sell, and how much marketing and promotion you’ll need to do.
7) Emergency fund and savings
It is always a good idea to have an emergency fund in place to cover any unexpected personal expenses. This ensures that you’re not relying solely on funds from your side-hustle to cover critical needs. It also reduces the pressure on you if you hit a dry spell.
It’s also vital you save for tax. Not everything you earn is profit: some will need to cover expenses, and some will have to be put aside for tax. If you routinely put by enough to cover tax from your profits throughout the year, you’ll have enough saved up to cover your Self-Aessment bill without worry.
8) Calculate your pricing and profit margins
As we’ve just touched on, not everything you earn is profit; you need to cover your expenses in making and/or delivering your product or service. So make sure that you’re aware of the true cost of what you do, including materials, labour and overheads. Also factor in your time (this is the part many people miss out!)
When you have a full picture of your expenses, including tax, you can work out what you need to charge. Don’t under-price yourself, and make sure that you’re covering all expenses and turning a profit.
9) Stay organised
Keep thorough records of all your financial transactions. This includes invoices, receipts, contracts and any other related information. Ideally you’ll keep up with your bookkeeping throughout the year. This avoids an annual panic as you get everything together to submit your Self-Assessment return in time.
It also means you don’t need to work out what payments on your bank statements relate to – a task that is much harder months after they were made.
Free resource: Get our free profit and loss sheet here.
10) Remember every side-hustle and financial situation is unique
Every side-hustle and financial situation is completely unique, so it’s a good idea to consult with a financial advisor or accountant, who can provide tailored advice based on your own set of specific circumstances.
They can save you time and stress in completing your accounts, and may be able to spot ways you can save money and pay less tax – for example, by paying into a self-employed pension.
