HM Revenue and Customs has announced that 2024 will see it focusing on holiday lets and ‘side hustles' in a move designed to ensure that people are properly declaring all their income and paying the right amount of tax.
Whilst many of the headlines in recent years have focused on tax avoidance schemes, HMRC estimates that twice as much money, a whopping £800 million a year, is lost to tax evasion which they define (broadly) as underreported income and personal expenses wrongly claimed against business income.
From 1 January 2024, holiday homeowners will need to hand over their bank details to HMRC as it has announced that it will use international rules to investigate people with holiday lets both here in the UK and abroad.
In addition, platforms such as Etsy, Uber and Dilveroo, together with freelancing websites like Upwork and Fiverr, and rental platforms such as Airbnb, will be ordered to share users’ details, including bank information.
HMRC already has the power to demand this information using UK laws, but from January it is going much, much wider, investing nearly £37 million to “help make it as easy as possible for people to pay the right amount of tax”.
They also admit, perhaps a little more honestly, that it aims to “bear down on, detect and tackle tax evasion”.
The initial HMRC team dedicated to this area will be 24 full-time employees.
Why the sudden focus?
Put simply, the growth of the digital economy.
In 2021, the TUC found that almost 15% of working people were active in the gig economy at least once a week. That meant around 4.4 million people.
That number was in stark contrast to the 1.4% (or less than half a million) of the workforce that was recognised as being engaged in this type of work. Meaning that around 4 million people are earning money that they may not be declaring.
The gig economy has continued to grow and the latest figures indicate that the UK Gig economy workforce is as many as 7.75 million people.
The reality is that HMRC simply does not trust the increasing number of people with side hustles to report their income accurately. For them, the answer is to compel the various platforms and apps to provide information directly and maintain records accordingly.
HMRC will then compare the income reported by the platforms to that declared by individuals and take action as appropriate.
Those already using online platforms to sell items and services can expect to start receiving requests for additional personal information such as national insurance numbers in the very near future.
When do you need to declare income from a side hustle?
As a rule of thumb, you can earn up to £1,000 each year from a trading side hustle and not pay any tax or national insurance, even if you earn above the personal tax allowance (currently £12,570 per year).
There is an identical allowance for income from property.
But, crucially, if you are earning more than the personal allowance (£12,570 per year) and earn any income from a trading business, then you must register for self-assessment tax, declare the income, and then claim the relief - known as the Minimum Trading Allowance.
Simply not declaring the income is not allowed - it is a relief, not an allowance, and must be actively claimed through self-assessment, meaning there is nowhere to hide.
What is self-assessment tax?
Put simply, it is the mechanism that HMRC uses to collect Income Tax and national insurance from people who earn money outside of employment (PAYE).
It covers things such as dividends, profits from businesses, and capital gains.
Individuals must register for self-assessment before 5 October each year. Therefore, if you earn any untaxed income before April 2024 and need to complete a self-assessment tax return before January 2025, you must register by October 2024 at the latest.
You will then need to make payments in January and July each year and keep appropriate records.
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