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Aanyone who makes money from their hobbies and selling items online could be hit with tax bills and fines unless they get their tax affairs in order now, experts are warning.

Sweeping new tax rules will be introduced on January 1, which could see thousands of people who earn a bit of extra income being caught out by the taxman if they haven’t declared it.

Those affected include anyone who buys and sells clothes and household items using online marketplaces, sells homemade crafts or baked goods via the internet, works as a driver or rents out a holiday home via an online platform.

Almost a third of UK workers have found ways to earn a bit of extra cash as the cost-of-living crisis squeezes their income, according to a survey by comparison website money.co.uk.

Robert Salter, a director at tax and accountancy firm Blick Rothenberg, says: ‘With the new rules coming in next January, now is a natural time to check your tax affairs and make sure you have no historical issues.’

Crackdown: New tax rules, to be introduced on January 1st, could see thousands of people who earn extra income being caught out by the taxman if they haven’t been declaring it

Anyone who earns less than £1,000 on side gigs in a tax year does not have to pay tax or declare this income, thanks to the Trading Allowance.

You can also earn up to £7,500 tax-free from letting out furnished accommodation in your home, under the Rent A Room Scheme.

However, if you make even £1 above your annual allowances then you need to tell the taxman, either by contacting HMRC and asking for your tax code to be changed or through a self-assessment tax return.

New regulations from January 1 will require digital platforms such as eBay, Uber and Airbnb to report information about the income of their users directly to HMRC.

Until now, HMRC has been able to request this data on an ad hoc basis, but from January 1 it will start to be given automatically.

Furthermore, from this date digital platforms based overseas — including for holiday lets in Europe — will have to report to HMRC about their UK resident sellers.

HMRC has earmarked £36.69 million, including 24 full-time staff, to enforce this new measure.

Dawn Register, head of tax dispute resolution at accountancy firm BDO, says that tax authorities have struggled to keep up with digital innovations in the gig economy, but are now playing catch-up fast and leaving fewer opportunities for people seeking to hide income.

‘The information will make it easier for HMRC to detect and tackle tax evasion,’ she adds.

‘It will therefore be even more important for taxpayers to ensure they are accurately reporting their income from all sources.’

Who needs to pay tax?

Although the digital platforms will report income information to HMRC, it is still up to the individual to declare their own income and pay any tax due.

You only need to pay tax if you’re considered a ‘trader’ by HMRC. This usually means that you buy and sell online regularly to make a profit. You can check how HMRC views your circumstances at gov.uk/check-additional-income-tax.

For example, if you clear out your attic and sell your unwanted items online without intending to make a profit, this is unlikely to be classified as trading even if you exceed your £1,000 allowance.

Similarly, if you occasionally make cakes for friends and family and they pay you small sums to say thank you, then you may not have to pay tax on it.

However, if you often buy and sell clothes online to make a profit, you could face a bill.

Extra income: Almost a third of UK workers have found ways to earn a bit of extra cash as the cost of living squeezes their income

What about my historic income?

It is not enough to start paying taxes now. ‘There are a lot of people who are going to have to clean up their history as well,’ says Robert.

He explains that if you have been earning a small amount over your allowance, you can usually file tax returns for those years retrospectively and pay the tax due.

‘There is a slight chance that HMRC will issue penalties, but in a lot of cases if you contact HMRC proactively and have small bills to pay, you should be OK,’ he says.

However, if you have larger sums to declare or have filed tax returns and did not mention your extra income, you will need to make a voluntary disclosure, he adds.

This is where you contact HMRC and tell it about the income you have previously failed to disclose. By contacting HMRC yourself, you should be given a less harsh penalty.

You can also help to keep any fines in check by responding to subsequent correspondence from HMRC promptly and paying the tax due immediately.

‘It may take some months to receive a final tax bill from HMRC, but you could pay an estimated sum immediately on account to show goodwill,’ Robert adds.

You may have to complete tax returns to declare the money earned from your hobbies, even if you have no other income and earn below your basic personal allowance of £12,570.

‘A lot of people think they do not need to file a tax return because they have no income tax to pay. But they still need to because they may incur a National Insurance bill,’ says Robert.

When are the deadlines?

Any income for the tax year ending on April 5 this year needs to be reported to HMRC by January 31 next year.

Dawn adds: ‘The new rules mean that information will be collected from January 1, so impact the current tax year ending April 5 next year.’

The sooner you notify HMRC the better. If you are filing historical tax returns, you may be able to give notice to HMRC that you intend to file and will then have three months from that date to do so.


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Content source – www.soundhealthandlastingwealth.com

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