There has been a lot of confusion online about 'side-hustle' tax.
Money Saving Expert Martin Lewis, accidentally overcomplicated the rules and then tried to correct himself by oversimplifying them.
You will need to register for tax if your side-hustle amounts to running a business or trade and you are making a profit. We explain what that means.
In this article: Clarifying the rules on side-hustle tax. Do I need to pay tax on my side-hustle income? Is a side-hustle taxable? Is there a new side-hustle tax? Do I need to register for tax when I sell on eBay, Vinted or Etsy etc?
Side-hustle tax Q & A
What is a side-hustle?
- A 'side-hustle' is a popular term used to describe any part-time profitable activity above and beyond your normal employment that aims to generate you some extra income.
- Typically, a side-hustle refers to generating extra income from an online source, although it can be used to describe any activity that adds a few pounds to the coffers, from selling off your old clothes to say running an Airbnb or earning some cash in letting out a spare room.
Is there a new 'side-hustle' tax?
- No, there is no new tax! There seems to be a lot of misunderstanding of the basic tax rules on the internet, that is all.
- We have been reporting cases which show HMRC investigating Ebay traders as far back as 2008!
Do I need to pay tax on my side-hustle income?
Yes, if your side-hustle is run in such a way as to amount to a trading activity and that you make a profit above your available tax allowances.
- A side-hustle will be classed as a trading activity from a legal perspective if any of the nine 'badges of trade' are evident.
- The Badges of trade are a checklist established by the courts to establish if an activity amounts to trading or not.
- If you are not trading, it may well be because your side-hustle is just a hobby.
- There is no tax to pay if your side-hustle is a non-profitable hobby.
- The bages of trade are as follows:
- Profit motive: are you buying and selling goods or services to make a profit?
- Frequency and number of transactions: are you selling a number of items or it is just the odd one-off?
- Modification of the asset: are you enhancing the asset in any way for sale?
- Nature of the asset: are the items you are selling, the kind of items typically sold by a business?
- Existence of similar trade: if are an artist, and you sell art, you are most likely trading as an artist. If you then sold a couple of cars, this is unlikely to indicate that you are now a motor dealer.
- Source of finance: are you financing your side-hustle with short-term finance, or ploughing your sales proceeds back into buying more stock for resale?
- Length of ownership: are you selling items that you have owned for a very short time (this indicates you could be buying in stock for resale)?
- The way the sale is carried out: e.g. if you create an online shop that would indicate trading.
- The reason for the acquisition and the sale. e.g. if you are buying goods for resale that indicates trading.
- You need only report taxable activities (i.e. side-hustle activities) that make a profit, but if you make a loss, you may well want to register for tax and claim that too.
- To work out your profit or loss, take income earned and then deduct from that the cost of the item sold and any expenses paid enhancing it and selling it.
- Alternatively, you can calculate your profit by claiming the £1,000 trading or property allowance against your income earned, instead of actual expenses. You cannot use the trading or property allowance to claim a loss.
- If your side-hustle just amounts to a hobby, you also cannot claim tax relief if you make a loss from your hobby.
What is new?
No new taxes in the UK: there are new measures that affect international sellers
- HMRC has various 'nudge letter' campaigns ongoing and back in 2023 it created one for online sellers, it continues to promote these campaigns. In January 2024 it started a new VAT campaign targeting overseas sellers.
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Under the Organisation for Economic Co-operation and Development (OECD) rules, from 1 January 2025 UK digital platforms must report information to HMRC about the income of sellers of goods and services on their platform since 1 January 2024. .HMRC will then exchange the information with the other participating tax authorities for the jurisdictions where the sellers are tax resident. A copy of the information must be given to the taxpayer to help them comply with their tax obligations.
- For UK based sellers, HMRC already has bulk data gathering powers to obtain data on sellers' details from various sources such online selling platforms, like eBay, Airbnb as well as from other places such as the Land Registry and Companies House.
- For example:
- Finance Act 2008: s114 HMRC powers to access to computer records, schedule 36 gives wide-ranging information gathering powers from taxpayers and third parties.
- Finance Act 2011 Schedule 11 HMRC powers to obtain data from a wide rate of 'data-holders'.
- Finance Act 2013 section 228 HMRC powers to collect up to 4 years of data from merchant acquirers, i.e. businesses that process credit and debit card transactions.
- Finance (No2) Act 2023 regulations which will require certain UK digital platforms to report information to HMRC about the income of sellers of goods and services on their platform, see OECD measures above.
What can HMRC do with the seller's data?
- HMRC notes traders' names and addresses, compares your selling turnover from various platforms and checks for tax registration.
- HMRC will apply some of the 'badges of trade', as listed above the data it receives, i.e. it will note the frequency and number of transactions, Modification of the asset, Nature of the asset and The way the sale is carried out to test whether it thinks that there is a trade.
What is the tax position?
If you start making profits from your side-hustle activity on a regular basis, and you have another job, the chances are that you will need to review your position and if necessary:
- Notify HMRC to inform them that you are self-employed.
- File a tax return by 31 January following the end of the tax year in which the activity started.
What types of side-hustle are taxable?
This table illustrates the typical types of online activities that are likely to be taxable and those that are not:
| Taxable: sale of multiple items purchased to make a profit | Not taxable: sale of private items |
| You buy up vintage pieces at car boot fairs, eBay, vinted etc and then clean them up to sell them at a profit through your own Instagram account |
You clear out your wardrobe and sell off all your unwanted clothes on Vinted. |
| You buy up children's goods at car boot sales, clean and perhaps repackage them to sell them on online platforms at a profit |
You sell off your children's old clothes, toys and cycles etc for cash |
| You create greeting cards and craft items in large numbers and sell them on Etsy at a profit | You sell off your grandparent's furniture that you inherited |
| You buy and sell cars or motor parts online | You sell off your old cars and miscellaneous items from your garage |
| You paint and sell your paintings and postcards to the public |
You paint for a hobby and sell the odd item. You sell your own private collection of stamps/postcards/art |
In short, online markets such as eBay have to report details of their sellers' income to HMRC. Despite all the hype, most sellers are private sellers selling off their own personal goods, and not running a business or trade and their income from online activities is not taxable.
If you think that you have taxable income to report, read through these FREEVIEW guides on this topic
- Starting work: Self-employed or Employed?
- Starting work: Special rules for certain types of worker
- Starting work: How employees are taxed
- Starting work: How the self-employed are taxed
Topical tax guides for subscribers
Online Sellers & Tax
What are the tax implications of being an online seller? When does a hobby become a business? What is a side-hustle? What expenses can online sellers claim for tax purposes? Are there special rules for taxing income? What are the VAT rules for online sellers?
Influencers & Tax
What expenses can online influencers claim for tax purposes? How is their income taxed? Are there special tax or accounting rules for influencers? What are the VAT rules for online influencers?
Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? Is your 'side-hustle' taxable? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.
A small selection of tax tribunal cases involving online sellers
£278k in an ebay account
In P Kaur v HMRC [2016] TC06210, the First-Tier Tribunal upheld HMRC’s penalties, finding that Ms Kaur was subject to VAT on her eBay business and had failed to notify HMRC of her obligation to be registered.
- HMRC conducted a review into Ms Kaur’s affairs in 2015, looking at 2010 to 2015.
- Ms Kaur stated that she was not self-employed in that time and also at one stage stated she did not have a PayPal account.
- Ms Kaur later stated that she made no profit from her eBay venture and as such, kept no paperwork or accounts...
Persistent failure to declare profits
In Vitalie Milasenco v HMRC [2023] TC 08862,- trading since 2008 the First Tier Tribunal (FTT) confirmed HMRC's actions as reasonable on Income Tax assessments and penalties for the deliberate failure to declare income by a long-time online seller who persistently failed to declare his income.
- The taxpayer was originally assessed to Income Tax for 2009-10 to 2012-13 as a result of an enquiry into online trading on eBay that concluded in January 2015. He did not appeal those decisions...
Late VAT registration
In Neil Edgell v HMRC [2018] TC 6853 HMRC was successful in catching an eBay trader, assessing him for VAT back to 2008. Assessments were found to be both within time and made best of its judgement despite the difficulties for both parties in extracting information from the online platform.
- From 2008, the trader sold counterfeit parts for BMW cars, mostly on eBay. In 2011, he was investigated by trading standards and prosecuted in 2014.
