Side Hustles and Tax
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Are you confused about which side hustles and tax? This post takes a look at when you need to pay tax on your side hustles and whether you might be affected by the news that Vinted and eBay will now be reporting on seller activity.
There is often quite a bit of confusion around tax and whether or not we need to pay tax on extra money earned through side hustles.
This has been compounded recently with HMRC announcing that Vinted and other online selling platforms will be sharing information on those selling more than thirty items or earning more than £1700 per year.
Sometimes it might seem as though starting a side hustle might not be worth it due to the tax implications.
You might be worried about filing a self-assessment for the first time or unsure if the £1000 trading allowance applies to you.
I’ve tried to break down some of the most common questions you might have about side hustles and paying taxes.
Side Hustles And Tax: Which Side Hustles Do I Need To Pay Tax On?
First of all, I thought we’d take a look at the side hustles where you don’t need to pay any tax at all.
That’s right, there are several side hustles where you don’t need to pay tax, so these are perfect if you’re worried about having to pay more tax or don’t want the hassle of record keeping for self-assessment.
Non Taxable Side Hustles:
- Selling your old clothes and belongings for less than you paid for them
- Matched Betting
- Bank Account Switching
- Cashback from sites like TopCashback, Quidco and Cheddar.
- Market Research (see further info below)
- Competition Wins*
For these side hustles, you don’t need to declare the income or fill out a tax return.
You can rent out a room in your home and earn up £7500 before paying tax but you’ll need to fill out a tax return. More info here.
*Competition wins are tax-free unless you decide to sell something that you won. Any profits made would then become taxable.
Taxable Side Hustles (You Need To Pay Tax If You Make Over £1000)
For any other side hustles, once your income is over the £1000 trading allowance (more on that in a minute!) you will need to fill out a tax return and pay any tax due.
You might want to start recording how much you earn and any expenses in a simple spreadsheet just for peace of mind.
This includes side hustles such as:
- Blogging
- Freelance Writing
- Dog Walking and Pet Sitting
- Buying items to resell for a profit
- Making crafts or greetings cards to sell
- Embroidering or printing t-shirts
- Restoring and selling furniture
- Babysitting
- Online Surveys
What Is The £1000 Trading Allowance?
The trading allowance is for anyone who makes a small amount of money doing side hustles or casual work.
This means you can earn a little bit extra doing any of the above without having to pay tax and this is in addition to the £12570 personal tax allowance.
As long as your gross income is under £1000 then you won’t need to pay tax or even need to register as self-employed.
However, once your turnover is above this amount you are classed as a trader and you will need to register and file a self-assessment tax return.
This also means you’ll need to start keeping records of the money going in and out of your business.
At this point, I would look at using an online service such as QuickBooks.
The trading allowance does not apply if you are already self-employed.
What About Market Research?
Market Research feels like a bit of a grey area when it comes to tax. Here’s what the HMRC website says:
In the circumstances above, HMRC agrees that the amounts paid to those concerned are unlikely to fall within the definition of “earnings” for PAYE or NI purposes.
No employment relationship exists and as such PAYE and NIC would be inappropriate.
There will be no tax or NIC liability arising on the individual if the sums received do no more than reimburse the individual’s reasonable costs of participating in the trial or research, including costs of travel and subsistence.
However should the sums paid exceed those reasonable expenses then the excess may fall to be chargeable to tax as Miscellaneous Income, potentially giving rise to personal tax liabilities of the individuals which should be notified to the HMRC under Self Assessment.
You can read more here and if you’re ever unsure, you may wish to contact HMRC directly for further advice.
Side Hustles and Tax – Frequently Asked Questions
Finally, I thought I’d answer a few of the most common questions about side hustles and taxes.
Is There A New Tax On Selling My Old Stuff?
No, there are no new taxes on selling your old stuff. Side hustle taxes and the trading allowance remain as they have always been.
The taxes mentioned in the news recently have always applied, HMRC is just trying to crack down on those who sell for a profit (traders and resellers) and have been avoiding paying taxes.
Do I Need To Pay Tax When Selling My Old Stuff?
No, you don’t need to pay tax when selling your old stuff at a loss or the price you paid for it. This includes clothes, shoes, items of homeware, furniture, books, CDs and so on.
As most people selling on apps like Vinted and eBay are simply selling their old stuff at a fraction of what they paid for it, there is no need to pay tax.
Even if you plan on selling the occasional brand-new item at close to the price you bought it for, you still won’t need to pay tax.
The only time you might be taxed when selling your old stuff is if it’s worth over £6k and this is when you may need to pay capital gains tax.
This is unlikely however to be the case for anyone selling their kid’s old clothes for a few pounds on Vinted.
You can read more on the HMRC website about Online Selling and Reselling which states:
‘If you are just selling some unwanted items that have been laying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax.’
What Is A Reseller? Reselling As A Side Hustle And Tax
A reseller is someone who buys clothes, homeware or anything else cheaply and then sells it for a profit.
It could be someone who buys cheap clothes from charity shops or in the sales to sell on eBay and Vinted or it could be someone collecting cheap furniture from Facebook Marketplace, giving it a lick of paint and then selling it for a large markup.
There is absolutely nothing wrong with being a reseller – in fact, it’s a great way to make extra cash.
However, resellers are classed as traders and do need to pay tax on their profits over the £1000 selling allowance.
The key here is whether or not the item is being sold for a profit against the purchase price.
The majority of people selling their old clothes are doing so at a loss for what they paid, even on brand-new items that haven’t been worn.
How Will HMRC Know Who Is A Reseller and Who Isn’t?
Resellers are pretty easy to spot on sites like eBay and Vinted once you know what you’re looking for.
- Many brand new with tags items.
- Wide range of sizes and styles.
- More than one of some products.
- Selling lots of the same product in a short space of time, eg selling five pairs of trainers in a month.
Do I Need To Pay Tax On Competition Winnings?
No, competition prizes are tax-free. However, if you won a car for example, and decided to sell it, you would need to pay tax on the money made.
Do I Need To Pay Tax On Earnings From Surveys?
Yes, you would need to pay tax on survey earnings if they exceeded the £1000 trading allowance.
Do I Need To Pay Tax On Vouchers Earned Online?
This is a bit of a tricky one, as there are lots of different answers online.
From what I have read, if there is no cash alternative offered from the site then you may not have to pay tax on vouchers.
If there is a cash option but you choose vouchers instead then these should counted as part of your trading allowance/income.
I always declare vouchers just to be on the safe side but you may want to do your research or contact HMRC yourself for this one.
Further reading:
Trading and Side Hustle examples
This post is not tax advice, please check with a professional if you are unsure of anything or need further help.
