Financial focus on Hobbies and “Side-Hustles”
2nd Feb 2024
To ensure “side hustles” pay income tax correctly, HMRC announced that they are obtaining information from online selling platforms like E-bay. This immediately caused a 9-fold increase in online searches for “E-bay tax” and similar.
Firstly, let’s put things in perspective – the rules have not changed.
If you are an infrequent user of a car boot or an online auction site in order to sell off personal items that you no longer want, you are not trading and have nothing to fear from HMRC. (You should take separate capital gains tax advice if your selling high value items, e.g: paintings or furniture).
Complexities arise where you may have a partially or self-funding hobby. If you purchase a box of figurines purely to obtain one model for your collection before reselling the others, you may be recycling your collection in order to improve it. Instead, if you purchased the job lot knowing the value of the whole but without knowing the existence of the rarity, then that is a trade.
Anytime you purchase an item (even a single item) to resell somewhere else at a higher price that is a trade.
To simplify having to declare occasional sundry trading activities, HMRC allow you an annual £1,000 trading allowance. The allowance is given automatically. If your turnover is under £1,000, you need not tell HMRC or include it on your Tax Return, although if you do file a Return annually for other reasons, a “white-space note” may be prudent. The trading allowance is also available against more traditional sources of self-employment.
If your turnover exceeds £1,000, you do have to tell HMRC, although the trading allowance may then be used as an alternative to declaring your actual trading expenses. You can also choose not to claim the trading allowance. The trading allowance cannot be used to create or augment a tax loss.
VAT, however, is a different issue. Whilst the VAT turnover registration threshold is currently £85,000, if you are already VAT registered, you need to charge VAT on any income or goods sold through your “side-hustle” as well, irrespective of claiming the £1,000 allowance.
Hope this helps
