‘The Depop Tax’ – Everything You Need To Know
In response to the rising popularity of side hustles, major platforms like Vinted, eBay, and Airbnb are now sharing users’ income details with HMRC to ensure accurate tax payments. The cost of living crisis has driven one in five UK adults to pursue secondary income sources, with one in six earning over £1,000 monthly. While side hustles vary, they may inadvertently lead to higher tax brackets or trigger side-hustle taxes. Understanding the £1,000 trading allowance is crucial, offering relief alongside the £12,570 personal allowance.
HMRC’s new reporting rules for platforms aim to enhance tax compliance without altering the tax framework. If your earnings from these platforms don’t breach the £1,000 trading allowance, there’s no additional tax. However, awareness of your potential tax liability is essential. Three common side hustles – selling online, starting an online business, and renting spaces – are examined, each subject to distinct tax considerations.
1. Selling secondhand items online:
– Tax-free allowance: £1,000 or £12,570 (without a main job).
– Tax payable on: Earnings over £1,000, subject to your income tax band.
2. Starting an online business:
– Tax-free allowance: £1,000.
– Tax payable on: Earnings over £1,000, minus allowable expenses, based on your overall income tax band.
3. Renting out your driveway:
– Tax-free allowance: £1,000.
– Tax payable on: Earnings over £1,000, minus allowable expenses, charged based on your tax band.
4. Renting out a spare room:
– Tax-free allowance: £7,500.
– Tax payable on: Earnings over £7,500, calculated on your income tax band.
5. A second or part-time job:
– Tax-free allowance: None (as likely exceeded through the main job).
– Tax payable on: Extra income calculated based on the income tax band you fall under.
Understanding tax implications is crucial as HMRC intensifies scrutiny, potentially pushing individuals into higher tax brackets. Whether through PAYE or self-assessment, HMRC assesses tax liability annually, considering combined income from main jobs and side hustles. Utilize HMRC tools, such as the second job tax calculator, to navigate potential tax impacts and stay informed on tax obligations.