Side-line selling online! Am I trading or is it a hobby! Do I need to register and pay tax!

If you work as an employee already or are self-employed and earning more than your tax-free personal allowances of around £12,000 per annum – anything on top of that, that you earn from selling online or renting property through an agency or Airbnb is likely to be taxable.

Whilst many people start off small and may believe it is a hobby, the longer selling goes on the more it becomes a taxable ‘trade’ in the Revenue’s eyes. Lindsay can explain the ‘badges of trade’ to you if you call her, as each individual’s circumstances are different.

You can earn £1,000 in additional ‘income’ each tax year alongside your regular job – this is known as your Trading Allowance but remember this is your top line turnover of £1000 not your bottom-line profit that counts. You will also need to be able to prove this if ever HMRC asks so you will need to keep good records to show that your income has not exceeded £1000. This can be bank statements or other records of your takings like invoices etc.

If you make more than this, then you will need to register yourself as self-employed and pay tax on these earnings as well as NIC.

You may feel that it is unfair to target the little people whilst high earners regularly appear to escape tax —  if you read the papers.

The new rules however will bring in millions across-the-board in return for quite minor outlay in terms of the ‘cost of collection’ for HMRC by employing lower grade officers to carry out these tax investigations. They will already be sitting on hard information gathered from the online platforms so before they even write to you, they will have a very good idea of how long you have been trading and how much you have been earning.

The letters will not be merely a fishing expedition on the off-chance of catching something. They will be closely targeted and before they are sent out, they will know everything about you and will be expecting to recover tax, interest and a penalty charge from you.

These online platforms are part of an existing and ongoing huge crackdown on tax avoidance from people boosting their income through working side-hustles, freelancing and self-employment. The crackdown aims to target those who are under-declaring – or not declaring their earnings.

If you feel you may not have followed the rules, please call Lindsay on 07879 464 577 and there’s a chance to make a voluntary disclosure quickly and get on the HMRC system before HMRC write to you.