HMRC is cracking down on additional income sources
So, what does HMRC see as an ‘additional income source’, and what could the impact be on your tax bill if you fall within the scope of HMRC’s new initiative?
HM Revenue & Customs (HMRC) has an obligation to ensure we all pay the correct amount of tax. But with many UK taxpayers now earning money from various ‘side hustles’, like eBay, Etsy or Airbnb etc, there’s a growing need for them to widen the net and review all sources of income, including these additional income sources.
If you’re making a bit of extra cash on the side, HMRC needs to do a bit of detective work to ascertain how much additional income you’re bringing in and although some enquiries and investigations are purely random, over 90% are triggered by an HMRC system called Connect.
From 2024, HMRC has made it a requirement for digital platforms to report how much income individuals are making through their site. These platforms include amongst others, eBay, Airbnb and Vinted. Although trading income from these sources has always been taxable, HMRC believes that significant profits are not being declared by some individuals.
So, will you be affected by HMRC’s new additional income sources initiative?
If you earn £1,000 p.a. or less in additional income, you won’t be affected – if you sell through eBay and similar platforms, HMRC are now much more likely to become aware of this income. If your total sales are below £1,000 per annum then that’s covered by the annual trading allowance so it can be ignored and HMRC won’t bother you.
If you earn more than £1,000 in additional income, you should register as self-employed – if your income is more than £1,000, it may be sensible to register as self-employed if you are continuing to operate a trading account (eg if you are buying goods to specifically sell eg on Ebay, this is deemed to be trading). However, if this income has resulted from sale of goods that are not carried out as a trade, it may be possible just to register for self-assessment and complete an appropriate tax return. This will mean ensuring that you keep adequate records, so you’re able to report the results of your trading activities to HMRC in a tax return, if required.
This new HMRC initiative aims to weed out taxpayers who aren’t fully declaring their income sources, with detailed investigations to prosecute any wrongdoing. To date, this initiative has help raised over £3 billion pounds in undeclared taxes.
If you are unsure if you have undeclared income sources and want to minimise your chances of being subjected to a lengthy and costly investigation by HMRC, please get in touch so we can talk through your specific circumstances and put together a plan of action.
You can find out more on this subject from HMRC here
