New rules for gig economy workers - your questions answered.

Tax can be complex and there is often low awareness and much confusion about how the tax system applies to gig economy workers. A failure to meet tax obligations because of this, can leave people in a difficult position even if it was a mistake. To help people understand their tax position, we have lots of information in our 'Tax if you work in the gig economy' website section. An explosion of news stories in recent weeks warning about HMRC’s apparent side hustle ‘crackdown’ makes our guidance even more relevant!

Here we explain what has led to the recent news stories, how it might impact you and what you need to do if you are behind with your taxes.

⚠️The most important thing to understand about the news stories is that they are about some new rules coming in, that relate to reporting requirements between various online platforms and HMRC. They do not create new tax obligations for individuals – the rules about who needs to declare their income, who needs to register for a Self Assessment tax return, when to register and how much tax people must pay in relation to their activity are already in place and have not changed. 

What have HMRC said?

Although there is lots of commentary about HMRC’s ‘warning’, it doesn’t appear that HMRC have issued any specific announcements about the gig economy, including side hustles. The media, however, appear to have picked up on the fact that there are some new HMRC rules that apply from 1 January 2024 which has led to a flurry of questions from people about what it means for them.

What are the new rules?

From 1 January 2024 new rules apply which require UK-based online platforms to:

• From 1 January 2024 - collect information about people who make money through their platforms and
• On or before the following 31 January (i.e. 31 January 2025 for the period 1 January 2024 to 31 December 2024) - send this information to both HMRC and to the individual themselves.

The information concerned largely relates to the identities of people and the money that they make through the particular platform.  Please see ‘Who is affected by the new rules’ below for more information as to the platforms that will be affected.

Once HMRC have the information, they can exchange it with other tax authorities in foreign countries who have also signed up to the new rules. This means overseas authorities should be aware of money that people who live in their country are making from UK platforms (and vice versa). It is not clear yet which these countries are (however, it is expected to include most EU members) or how they will use the information and when.

What’s the purpose of the rules?

The rules should help make it easier for people who make money through online platforms to comply with their tax obligations as the platform operators must give them details of their earnings. This information should help them complete their tax returns for example. The information provided to HMRC about an individual’s earnings will help HMRC tackle non-compliance/tax evasion when individuals have not declared those earnings for tax purposes.

Who is affected by the new rules?

People who make money (including tips/gratuities and incentives) through the online platforms that are impacted by the new rules will potentially be affected

The new rules mean that if people have not been reporting their platform income properly and paying the appropriate tax in line with existing rules, then HMRC are more likely to find out about it. They also mean that the platforms might ask you more questions before they allow you to sign up to ensure they can collect the information about you that they are required to by HMRC.

The rules setting out which online platforms are impacted are very complex however the key points are that:

• The new rules will apply to UK-based platforms that help make transactions between sellers of goods and services and customers possible (except those that do not allow sellers to make a profit from the payments received, e.g. some ride-sharing platforms where the only money that changes hands is a contribution towards fuel).
• If you use platforms in other locations, although these will not be caught for the purposes of the UK reporting rules, they may be caught in another country that is implementing the rules. This means HMRC could eventually have the same information about transactions once the overseas tax authority has sent the information to them.

The following transactions are captured:

• Category A - those to do with property rental, vehicle rental or a personal service
• Category B - those to do with the sale of goods - although not if you occasionally sell goods for small amounts. (This is defined as less than 30 transactions during the calendar year for which the total amount made must not exceed 2000 euros - both tests must be met for this exclusion to apply.)

Category A captures things like taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation through online platforms. Category B captures people who buy or make purposefully to sell; but not those who sell a few personal belongings every now and again, for example to declutter.

Therefore people who make money via many different platforms, including the big ones like Uber, Deliveroo, Just Eat, Airbnb, TaskRabbit, Etsy and Ebay may all potentially be affected.  

If the new rules don’t affect me, do I need to do anything?

It is important to understand that even if your activity is not captured by the new rules, you still need to check your position, as the money you are making could still be taxable. In particular the following types of people probably still need to do something about their taxes:

• if you fall within the ‘small’ Category B exemption (see above) but are still trading;
• if you are paid outside the platform for some element of your work, perhaps in cash or in kind or gifts;
• if you have a business commercially selling direct to the public in fairs and boot sales as well as through a platform (for example, if you had an old antique coin business);
• if the online platform account you work under is not in your name, but a friend or relative’s (meaning HMRC will think the income belongs to them!)

What do I need to do from January 2024?

In general, most people have to declare their income from the gig economy to HMRC and pay tax on any profits they make. If you have already been declaring your income, as required, then you don’t need to do anything differently. If you do not do this already, then you could have a problem when HMRC get data that they realise does not match what you have told them or you have not told them about your gig economy income at all. You may need to take some action to bring your tax affairs up to date and we cover this below.

There are however, two main exceptions:

• If you have trading or miscellaneous income (before expenses are deducted) of up to £1,000 (the Trading Allowance) and meet the other conditions for the Trading Allowance to apply; or
• If are selling personal items that you no longer want or to clear some space (this is unlikely to be counted as trading or miscellaneous income so does not use up the Trading Allowance).

When you are selling things you no longer want, e.g. books, toys, clothes etc., the reality is you are generally selling at less than you paid for them. Your activity is unlikely to be regular, organised or developed and you are not operating with a view to making a profit if you are simply trying to get back some of the money you original spent on those items. You are therefore unlikely to be trading, so even if it is a significant amount, any money you make is generally not taxable. We explain in what circumstances you are likely to be trading in our guidance: Tax if you work in the gig economy.

In rare instances, if you sell high value personal items like jewelry and paintings you may have to report and pay capital gains tax. Broadly this only applies if you sell the item for more than £6,000 and you make a profit. Even if you make a gain/profit, you may not have to pay any capital gains tax as you get an annual exempt amount (£6k in 2023/24). We explain more in our website guidance.  

For those who are trading or generating miscellaneous income, there are lots of misconceptions out there – that because it is a side hustle, or you are paid in cash, or you have been doing it for less than a year then you don’t need to worry about telling HMRC – none of this is true.

Some people also think that if you have no tax or National Insurance to pay, then you don’t need to submit a tax return. HMRC say that if you have self-employment income of more than £1,000 you need to send HMRC a tax return, even if there is no tax or National Insurance to pay. However, there is a view that if there is no liability to pay anything, there is no need to submit a return. Read our guidance here for more information. It is important to stress that if HMRC have asked you to complete a return, by sending you a notice, you will still need to complete one in these circumstances – even if you have no tax or National Insurance liability – unless the notice is withdrawn or cancelled.

HMRC have confirmed that they will invest £39.96 million, including 24 full time equivalent staff in operating and enforcing the new rules, so it’s important to take them seriously.

If the new rules only apply going forward, do I need to worry about prior years?

You should still try to ensure that your tax position is correct for prior years too. Although the new rules make this type of data sharing automatic and international, HMRC already have powers to ask online platforms for data to help them ensure that all income is correctly declared and taxed. People can also tip HMRC off if they think people are not declaring their income properly.

This means that HMRC may find out about your prior year income in other ways, although the risk definitely increases from 1 January 2024.

The 1 January 2024 date falls within the 2023/24 tax year. The deadline for notifying HMRC of the income and/or registering for a Self Assessment tax return for this tax year is 5 October 2024, with the deadline for submission of online tax returns and payment of any tax due being 31 January 2025. Those making money through online platforms therefore have a good amount of time to check whether they need to do anything for 2023/24.

Please note - because HMRC will receive the information from online platforms in arrears, and it will take them some time to analyse and act on it, you might not be contacted by HMRC about any problems they think there are until many years after the event.

What if I’ve not done anything about my taxes so far?

If you are worried that you are non-compliant with your taxes, we have a page of help and guidance about what to do on our website.

The situation may not be as bad as you think, but you should act quickly and take steps to get your tax affairs up to date.

We know people can be concerned about going to prison if they don’t pay their taxes – please be reassured that it is extremely unlikely to get this serious. Criminal sanctions are, in any case, used only as a last resort in cases of serious tax evasion.

How can I best prepare for the new rules?

• Read our guidance - We set out the main tax obligations that people in the gig economy have, in our guidance. The rules that apply to people who sell things can be found here. 
• Check your position - To make sure that you have been doing everything correctly (and that you will continue to do things correctly!)
• Register for a 2023/24 Self Assessment tax return if you need to.
• If you need to complete a 2022/23 Self Assessment tax return but have not yet told HMRC, do not panic – you still have time, as we explain here.
• If there are any earlier years that require regularising you may want to seek assistance – as we set out in our guidance. If you cannot afford to pay for a professional accountant or tax advice, TaxAid may be able to assist you with historic problems and get you compliant going forward.
• Put things in place now that will stand you in good stead for managing your tax position going forward. For instance, from a practical perspective, people who are doing a mixture of things (for example selling things to declutter and selling things they have bought or made specifically to sell on), may wish to try and manage the different strands of money separately to help keep themselves compliant. Using different online platforms is one way of doing this as it keeps everything neat and tidy. However, in reality, ours is a Self Assessment system, with the onus on you to factor in/report what needs to be factored in/reported. Provided you are keeping good records that clearly demonstrate the difference in the nature of the underlying items that are being sold and that explain inclusions and exclusions in your workings/reported figures - this should hopefully be enough.

We have more information on record keeping here. This page also covers what records you may want to keep if your income is below the Trading Allowance and you don’t actually need to complete a Self Assessment tax return.

Should I stop my activity?

We know some people may be considering closing their accounts with online platforms due to being scared about the new rules. While we appreciate some people are better at paperwork and managing money than others and that you have to make a decision based on what is best for you, there is also an old saying that you should not let the tax tail wag the dog (this means don’t make important decisions based on tax considerations alone!). Stopping your activity may mean that you lose out on increased  income.  

We also know that HMRC are thinking about how they can best support people with the new rules. We will be feeding in our thoughts and ideas on this to them over the coming weeks and months.

Where can I find more information?

The new rules implement the OECD’s “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy”. The OECD stands for the Organisation for Economic Co-operation and Development.

You can read HMRC’s Reporting rules for digital platforms tax information and impact note for more information about how the rules will be implemented in the UK.

HMRC’s supporting technical guidance explaining the scope/definitions etc. of the new rules can be found here.