Navigating HMRC’s Crackdown on Additional Income and Gig Economy Work

HMRC is launching a crackdown on tax evasion in 2024 with the goal of ensuring individuals who earn additional income outside of their employment accurately calculate their tax obligations by introducing systems that target those who intentionally evade paying their income tax. Reports indicate that HMRC has invested approximately £37 million and recruited 24 full-time employees in order to implement and enforce this crackdown.

While the internet has made many changes to our everyday lives (… not all positive), it has enabled many individuals to earn some extra income from various ‘side hustles’. HMRC knows this and is using new regulations which will require digital platforms (which facilitate people to earn this additional income) to provide them with details of users’ earnings.

Companies such as Amazon, Airbnb, Deliveroo, Etsy, and Vinted will all be required to disclose the income of their userbase to HMRC. HMRC will then use this information to determine what individuals are earning and cross-reference these figures against the information disclosed on tax returns.

For those who are already accurately declaring their income to HMRC, nothing really changes, but if you’re not and are unsure what to do next, you should read on to find out more.

What is classed as a side hustle/additional income by HMRC?

In layman’s terms, a side hustle is an additional activity that a person undertakes in addition to their primary job in order to supplement their income. There are numerous ways in which people can generate additional income online, like advertising through Airbnb; selling new or used products via eBay, Etsy, or Vinted; or taking on shifts as food delivery couriers for companies like Deliveroo.

For tax purposes, you are classified as a ‘trader’ by HMRC if you engage in online selling, whether it involves goods or services, and HMRC expects you to declare this income so you can pay tax on it where appropriate.  You should bear in mind though what actually counts as a ‘trade’ for tax purposes (Mia to write article on the Badges of Trade).

£1,000 tax-free trading allowance for additional income

In order to limit the number of resources HMRC require to monitor ‘unnecessary’ self-assessment tax returns, self-employed individuals are entitled to a £1,000 allowance known as the trading allowance. This is an annual allowance that can be used to remove the tax burden for certain individuals who earn less than £1,000 per year or reduce the burden for those earning above this criteria who do not incur many expenses that would offset their gross income.

For those with multiple sources of trading, casual, or miscellaneous income, unfortunately, there is only one trading allowance per tax year, not one per source of self-employed income.

For landlords with other self-employed income, the trading allowance can be claimed on your self-employed income without effecting your claim to your property allowance. The property income allowance can be used in addition to the trading allowance in the same tax year, and both the trading allowance and the property income allowance can be used in addition to your tax-free personal allowance.

Rent a Room Scheme

For those looking to earn additional income by having a lodger, Rent a Room relief provides a generous tax-free amount of £7,500 when a person rents out furnished accommodation within their own homes.

If your income is below £7,500, you will automatically qualify for a tax exemption. In this case, there is no action required on your part; however, if you earn more than £7,500 per tax year, it is necessary for you to complete a self-assessment tax return.  This allowance applies to a single property only – if the home is owned jointly or there are multiple lodgers, the maximum allowance remains at £7,500.

Online income from overseas companies

HMRC has already been granted the authority to request data on the earnings of sellers, including their bank account information, from UK-based apps and websites.

An issue for HMRC arose when it came to digital platforms that are situated overseas (such as holiday rental websites). These caused HMRC issues in identifying individuals who were avoiding paying the taxes due on their income.

In order to address this issue, HMRC has recently agreed to adhere to the regulations set out by the Organisation for Economic Co-operation and Development (OECD). This enables HMRC to investigate the tax affairs of UK individuals who earn income through companies operating abroad. In return, HMRC will also exchange information with other tax authorities that have agreed to participate in the OECD rules.

Use of this information

In order to identify individuals who may be engaging in tax evasion, HMRC is provided with information from all sorts of sources, such as banks, estate agents, and foreign tax authorities. HMRC then uses this information to determine if people are earning income that has been undisclosed.

If they believe someone has underreported their income, they may send out letters encouraging them to disclose unreported income in order to avoid criminal charges. Schemes such as the Let Property Campaign are examples of HMRC utilising these sources of information to identify those who may be earning income from residential properties.

HMRC will utilise information from these 3rd party digital companies to identify these non-compliant individuals and send them ‘nudge letters’ that will encourage individuals to disclose their previously unreported income and pay any interest or penalties due.

How does this affect me?

For those who are already accurately declaring their income from additional income to HMRC, nothing really changes; however, should you earn more than £1,000 in a tax year, you should consider your obligations to report your earnings from your side hustles. For more information regarding this, click here

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