Understanding Personal Tax: do you need to declare your side hustle income?

The past year of furlough and flexible working has given people more time to focus on their hobbies. Whether its homemade cakes, up-cycled furniture, jewellery or pet portraits, we have seen an increase in people turning their hobbies into a nice source of extra income. So, it’s important to ask: what’s the position on side hustles and tax?

Are you trading?
It can be hard to tell exactly when your hobby goes from just that, to a trade. This makes it easy to forget that you might need to tell HMRC about your additional income.
The requirement to let HMRC know about your income applies to all kinds of informal arrangements: from making sales online, to taking on casual jobs like gardening, dog walking or babysitting, and even renting out property or part of your home.

So what will HMRC be concerned with? They will want answers to these questions:

Has the individual effectively set up a business?
and
Does the income generated amount to trading income or property income?

HMRC looks for specific signs to decide on the latter point. These are often called the ‘badges of trade’. Key signs include:

• whether there is an intention to make a profit
• the number of transactions
• the way sales are carried out

You may need to notify HMRC if you have additional income that is not from your usual employer or business. If you think this relates to you, the best time to let us know about any additional income is when we come to prepare your assessment tax returns. We can advise whether income should be disclosed, and the appropriate timescale for notifying HMRC.

Is it taxable?

There are several special rules that may cover some casual income. Two relatively new allowances - the Trading Allowance and the Property Allowance - may be available to cover small amounts you have received. Up to £1,000 per year tax-free is provided by each allowance. If someone has both types of income, they can use both the allowances.

There is no need to tell HMRC or declare the income on a tax return, when annual gross property/trading income is £1,000 or less. However, you may still need to submit a tax return, depending on other income. Certain circumstances will require someone with trading income to register for Self-Assessment and complete a return.

Depending on the individual circumstances, these allowances may not provide the most tax-efficient means of dealing with income and expenses. We would always recommend speaking to one of the RfM Team about your unique situation. Please contact us for advice on this or any other such matters.