Online sellers in the UK who generate income from selling second-hand goods on digital platforms, often referred to as “side hustles,” could find themselves paying taxes on their earnings as part of a New Year tax clampdown initiated by HM Revenue & Customs (HMRC).
Starting from January 1, digital platforms such as eBay, Airbnb, Etsy, Amazon, and Vinted are now required to share seller information with HMRC in a move referred to as the “side hustle tax.” This new regulation aims to enable tax authorities to identify and combat tax evasion effectively. Additionally, it aims to create a level playing field by subjecting online sellers to tax regulations similar to those governing traditional businesses.
The threshold for earnings from these online side hustles is set at more than £1,000 a year. Those earning more than this amount must register as self-employed and file a self-assessment tax return at the end of the financial year.
While HMRC could request information from UK-based digital platforms previously, the UK has now adopted new rules in line with the Organisation for Economic Cooperation and Development (OECD) regulations that came into effect at the beginning of this year. These rules enable the UK to share information with other tax authorities and gain access to data from platforms based outside the country.
However, online platforms will only be required to report seller information directly to HMRC starting at the end of January 2025. The information reported will include tax identification numbers, bank account details, and the amount and number of transactions made by sellers with substantial trading activity.
This requirement applies to digital apps and platforms, including providers of websites to third-party sellers. It covers the sale of various goods and services, such as handmade or second-hand items, taxi services, food delivery, freelance work, and short-term accommodation or driveway parking rentals.
The implementation of the “side hustle tax” marks one of several tax changes taking effect in 2024. This includes changes to the national insurance rate paid by employees. Notably, on January 6, the national insurance contribution (NIC) rate for earnings between £12,570 and £50,270 will decrease from 12% to 10%. Self-employed workers will see further changes on April 6, when Class 2 contributions are abolished, and their main NIC rate decreases from 9% to 8%.
Although these changes provide some financial relief, taxpayers should consider the overall direct tax burden, including frozen income tax thresholds and allowances, which have eroded take-home pay and disposable incomes since 2021-22 and are expected to continue until 2028.
As the “side hustle tax” takes effect, online sellers and digital platforms must adhere to the new regulations, marking a significant shift in how side hustle income is reported and taxed in the UK.
