Homemade cakes, up-cycled furniture, jewellery and pet portraits… over the last year, furlough and flexible working has afforded people more time to turn their hobby into a nice source of extra income. But what’s the position on side hustles and tax?
It’s not always easy to tell where a hobby stops and trade begins. But it can be easy to forget that you might need to tell HMRC about the additional income from your sideline.
The requirement to inform HMRC applies to all sorts of fairly informal arrangements: from making sales online to taking on casual jobs like dog walking, gardening or babysitting, and even renting out property or part of your home.
HMRC will be concerned with answering these questions:
Has the individual effectively set up a business?
Does the income generated amount to trading income or property income?
There are specific signs HMRC looks for in order to decide on the latter point. These are sometimes called the ‘badges of trade’. Such signs include whether there is an intention to make a profit, the number of transactions, and the way sales are carried out.
You may need to notify HMRC if you have additional income that is not from your usual employer or business. The best time to let us know about any additional income is when we come to prepare your assessment tax returns. We will be able to advise whether income should be disclosed, and the appropriate timescale for notifying HMRC.
Is it taxable?
Some casual income may be covered by special rules. There are two relatively new allowances: the Property Allowance and the Trading Allowance, which may be available to cover small amounts received. Each allowance provides up to £1,000 per year tax-free, and someone with both types of income can use both the allowances.
Where annual gross property/trading income is £1,000 or less, there is no need to tell HMRC or declare the income on a tax return. However, depending on other income, you may still need to submit a tax return. There are certain circumstances that require someone with trading income to register for Self Assessment and complete a return.
Depending on the individual circumstances, these allowances may not provide the most tax-efficient means of dealing with income and expenses. Please contact us for advice on this or similar Income Tax matters.