Significant HMRC Changes To Side Hustle Tax: What You Need To Know

Henrik Larsen

5 min read

Post on May 20, 2025

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Understanding the New Thresholds for Side Hustle Income

The HMRC regularly reviews the thresholds for reporting side hustle earnings. Staying aware of these changes is critical for avoiding unexpected tax bills.

The Increased Reporting Threshold

The updated income thresholds that trigger the need to report side hustle earnings to HMRC have changed. Exceeding these thresholds means you are legally required to file a Self Assessment tax return. Failure to do so can result in significant penalties. The specific income levels vary depending on the type of side hustle:

• Freelance Writing/Graphic Design: The threshold might be £1,000 above the previous year's amount (check HMRC for the latest figure).
• Online Selling (e.g., Etsy, eBay): The profit threshold remains the same, however any turnover over £85,000 requires VAT registration.
• Tutoring: The income threshold is determined by your overall income across all sources; if your combined income surpasses a certain level, you must declare your tutoring earnings.

Penalties for non-compliance can include:

• Late filing penalties.
• Interest charges on unpaid tax.
• In severe cases, potential legal action.

For the most up-to-date information on income thresholds, refer to the official [link to relevant HMRC guidance page].

Changes to the Profit Calculation

Understanding how profits are calculated is vital for accurate tax reporting. The HMRC has clarified certain deductible expenses:

• Allowable Expenses: Many expenses incurred while running your side hustle are deductible, reducing your taxable profit. These can include:
  • Travel expenses directly related to your work.
  • Office supplies and equipment.
  • Marketing and advertising costs.
  • Professional subscriptions and training.
• Record Keeping: Maintaining meticulous records of income and expenses is paramount. Keep digital or paper copies of all receipts, invoices, and bank statements. This will help you accurately calculate your profit and support your tax return.

Examples: If you're a freelancer and spent £200 on marketing and £100 on software, these amounts are likely deductible. Accurately recording and categorising these expenses can considerably reduce your taxable income.

New Reporting Requirements for Side Hustle Income

HMRC continues to modernize its reporting systems and processes. Knowing how these systems work and how to use them properly is crucial for your side hustle tax compliance.

Online Reporting Systems

HMRC primarily uses the Self Assessment online system for reporting side hustle income. Familiarize yourself with this system and ensure your details are up-to-date.

• Step-by-Step Guide: [Link to HMRC's Self Assessment guide] provides a comprehensive guide to navigating the online portal.
• Technical Issues: If you encounter any technical problems, refer to the HMRC helpline or online support resources.
• HMRC Support: HMRC offers various support options, including phone lines, online chat, and in-person appointments.

Increased Frequency of Reporting

While annual tax returns remain the norm, some side hustles might require more frequent reporting.

• Quarterly Reporting: Depending on your income level and the type of side hustle, you might be required to submit quarterly updates.
• Managing Cash Flow: More frequent reporting necessitates careful management of your finances to ensure timely tax payments.
• HMRC Payment Options: HMRC offers various payment methods, including online banking, debit/credit card, and direct debit. [Link to HMRC's payment options page]

Tax Implications for Different Types of Side Hustles

The tax implications vary depending on the nature of your side hustle. Understanding the specific regulations for your activity is crucial for compliance.

Specific Tax Implications for Freelancers

Freelancers must understand the intricacies of self-employment tax and the implications of IR35 legislation.

• Employed vs. Self-Employed: Clearly understanding the difference is critical for correct tax reporting.
• IR35 Legislation: IR35 rules govern the taxation of freelancers who work through intermediaries. Understanding these rules is essential to avoid potential tax liabilities.
• Determining Employment Status: Use HMRC's online tools and guidance to determine your employment status correctly.

Tax Implications for Online Sellers

Online sellers need to be aware of VAT thresholds, customs duties, and other relevant regulations.

• VAT Registration Threshold: If your turnover exceeds the VAT registration threshold, you are required to register for VAT and charge VAT on your sales.
• Record-Keeping: Meticulous record-keeping is essential to track sales, expenses, and VAT calculations.
• Customs Duties: If you import goods to sell online, be aware of any customs duties and import taxes you might need to pay.

Conclusion

This article summarized the key changes to HMRC regulations concerning side hustle tax, covering topics like increased reporting thresholds, new reporting requirements, and the tax implications for different side hustles. Staying informed about these updates is essential for all individuals supplementing their income through side hustles. Non-compliance can lead to significant penalties.

Understanding the intricacies of side hustle tax can feel daunting, but staying informed is crucial. Regularly review the latest HMRC guidelines and seek professional advice if needed to ensure you’re compliant with the latest changes to side hustle tax. Visit the HMRC website for further details on the latest [link to HMRC website] and avoid costly mistakes related to your side hustle tax obligations.