10 min read
The rise of the internet has democratised entrepreneurship, leading to a surge in side hustles and online businesses. From selling handmade crafts on Etsy to offering freelance services, individuals are finding new ways to generate income. However, this digital gold rush has also brought to light the issue of undeclared online income, prompting HMRC to launch its “Help for Hustles” campaign. This initiative aims to educate individuals about their tax obligations and encourage them to declare their earnings. But what exactly does this campaign entail, who does it affect, and, most importantly, will you receive an HMRC letter? Let’s delve into the details.
What is the ‘Help for Hustles’ campaign?
The “Help for Hustles” campaign is an HMRC initiative designed to provide support and guidance to individuals earning money through side hustles or online activities. It recognises the growing gig economy and the increasing number of people generating income outside of traditional employment.
The campaign offers resources and information to help individuals understand their tax responsibilities, including how to register as self-employed, keep accurate records, and file a Self Assessment tax return. It aims to simplify the process and encourage compliance rather than simply penalising those who haven’t yet declared their income. The campaign provides specific guidance tailored to various types of hustles, including:
Why does this signal a crackdown on online sellers?
The “Help for Hustles” campaign isn’t just about education; it’s a clear indication that HMRC is actively targeting undeclared online income. Several factors contribute to this increased focus:
How do HMRC know about your undeclared income?
HMRC is increasingly sophisticated in its data collection and analysis. They receive information from various sources, including:
1. Online platforms
HMRC is working closely with online marketplaces and payment processors to identify sellers who may be exceeding the tax thresholds. Platforms are legally obligated to report seller information under certain circumstances. They are looking for people who are operating as a business as opposed to individuals selling items they no longer want.
2. Banking information
HMRC can access banking data to identify regular income streams that are not declared on tax returns. Regular payments into your bank account from online platforms or payment processors could trigger an inquiry.
3. Social media
HMRC can find clues about undeclared income by looking at social media profiles. For example, if you frequently promote products or services on your social media channels, HMRC may investigate whether you are declaring this income.
4. Tips from the public
HMRC also receives information from members of the public who suspect others of tax evasion.
5. Publicly available information
HMRC can monitor online marketplaces and social media to identify individuals selling goods or services.
Increased enforcement already underway
HMRC has already started taking action against individuals with undeclared online income. They are issuing nudge letters, conducting investigations, and imposing penalties for non-compliance.
HMRC’s greater understanding of e-commerce
HMRC has developed a deeper understanding of the e-commerce landscape. They are aware of the various platforms and payment methods used by online sellers, making it easier to track transactions and identify undeclared income.
Who is affected?
The campaign targets a broad range of individuals involved in online income-generating activities:
1. Those who buy and make things for profit
Whether you’re crafting goods, sourcing products for resale, or dropshipping, if you’re selling with the intention of making a profit, HMRC considers this a trading activity, and the income is taxable. This applies even if it’s a side hustle alongside other employment.
2. Those with a side gig
If you’re providing services like freelance writing, graphic design, tutoring, or pet-sitting, and you’re earning money from it, this is considered taxable income. It’s crucial to keep accurate records of your earnings and expenses.
3. Those who work for themselves
This category covers a wide range of self-employed individuals, from consultants and contractors to artists and musicians. If you’re running your own business, even on a small scale, you need to register as self-employed and declare your income.
4. Content creators and influencers
Income from brand deals, sponsorships, affiliate marketing, and advertising revenue is all taxable. Even gifts and free products can sometimes be considered taxable benefits, particularly if they’re given in exchange for promotion. It’s essential to understand the rules around declaring these kinds of earnings.
5. Those who rent out property
If you’re renting out a room in your home, a second property, or even just a parking space, this rental income is generally taxable. There are some allowances available, but it’s important to understand the rules and declare any relevant income.
If you’re affected, what should you do next?
1. Determine if you need to register
Carefully review your online activities. Are you selling for profit? What is the volume of your sales? Have you made any high-value sales? HMRC’s website offers specific guidance for each category of online activity, helping you determine your obligations.
2. Gather your records
If you believe you need to declare income, start organising your financial records. This includes sales records (dates, amounts, platforms), expense receipts (shipping, fees, inventory), and bank statements. Accurate record-keeping is crucial for calculating your profit and minimising your tax liability.
3. File a Self Assessment tax return
If you haven’t already, register for a Unique Taxpayer Reference (UTR). Complete your Self Assessment tax return by the relevant deadlines (typically January 31st for online returns) and pay any tax owed on time to avoid penalties.
4. Address previous tax years
HMRC can investigate previous tax years, often going back two to three years. Therefore, it’s vital to gather records for all relevant years, not just the current one. This includes revenue, expenses, and profit calculations for each year you’ve been selling online.
Already received a letter from HMRC?
If you’ve already received a letter from HMRC regarding undeclared online income, it’s crucial to take it seriously. Don’t panic, but don’t ignore it either. Carefully review the letter and gather all relevant documentation. Reach out to HMRC to talk about your specific circumstances, and if necessary, consult with a qualified accountant or tax advisor for expert guidance. Being proactive and cooperative is essential in resolving the matter.
Final thoughts
The “Help for Hustles” campaign and HMRC’s increased focus on online income underscore the importance of tax compliance in the digital age. While the campaign aims to provide support and guidance, it also serves as a reminder that undeclared income will be scrutinised. By understanding your tax obligations, keeping accurate records, and filing your tax returns correctly, you can avoid potential penalties and ensure that you’re playing by the rules. If you’re unsure about your tax situation, seeking professional advice is always a wise investment. Don’t wait until you receive an HMRC letter – take proactive steps now to ensure your online hustle is tax-compliant.
