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Those with side hustles and freelance businesses will face a ‘tax crackdown’ as HMRC launches new rules effective from 1 January 2024. Jack Parker, Associate Director at Bevan Buckland LLP, explains these changes, how they will affect you if you earn a second income, and how you can ensure you comply with the new rules.

What is a ‘side hustle’?

A side hustle is an activity that earns you money, separate from your primary job.

The Upcoming Tax Crackdown

HMRC is gearing up to implement an extensive tax crackdown on side hustles and the wider gig economy. This new initiative, set to take effect on 1 January 2024, will impact workers and freelancers on platforms such as Uber, Etsy, and Airbnb. From 1 January 2024, HMRC has instructed platforms (including Airbnb, Uber, Deliveroo, Etsy, Fiverr and Upwork) to record how much they are paying to people and report these earnings to HMRC directly.

The Reason Behind the Crackdown

Since the COVID-19 lockdowns, the number of people in the UK earning a second income through freelancing and side hustles has grown significantly. A Fiverr survey of 2,000 UK workers found that 58% of those earning extra income began doing so after March 2020. Consequently, HMRC is becoming increasingly wary of the growing number of individuals engaged in side hustles across the UK and that they may not accurately report their earnings, potentially leading to uncollected tax revenues.

Seb Maley, the CEO of tax insurance provider Qdos, summarises the issue by stating: “The crux of it is that HMRC doesn’t trust the growing number of people with side hustles in the UK to accurately report how much money they’re making…so the tax office will go directly to these platforms, who will become responsible for recording this information and handing it over to HMRC.”

By this, Seb Maley means that the platforms connecting freelancers and gig workers with customers must record their users’ income and report it to HMRC.

The Implications for Freelancers and Gig Workers

However, this does not mean that freelancers and gig workers do not have to complete their own tax returns. HMRC has implemented these rules to check that what individuals report matches the data the platforms report, ensuring all tax liabilities are captured and paid.

Therefore, freelancers must ensure tax compliance by completing their Self-Assessment tax returns every year and paying their income tax and national insurance obligations. Failure to do so could lead to investigations and potential penalties. Anyone currently earning more than £1,000 per annum from their side hustles should already be reporting their earnings to HMRC via self-assessment.

Failure to notify HMRC of tax liabilities can result in a ‘failure to notify’ penalty – the amount is calculated based on the percentage of potential lost revenue.

Contact our Tax Experts

For those who participate in side hustles and work within the gig economy, staying informed about these changes is essential; seek professional advice when necessary and ensure that you remain compliant with your reporting requirements.

At Bevan Buckland LLP, we are committed to providing the most up-to-date information and guidance to help you navigate these changes effectively. Please do not hesitate to contact our tax experts for assistance and clarification by calling 01792 410100 or by sending us an email.