It’s easy to think that no one will know if you have a side hustle, but it can come back to bite you.
What Are the Legal Requirements Surrounding Self-Employment?
In the UK, all income over £1,000 in a given tax year must be reported using a Self-Assessment Tax Return.
You will not pay tax on the first £1,000 that you make – this is classed as your tax-free allowance and applies to each tax year – i.e. April to April. This applies to all income you receive, from side hustles to your regular day job.
Individuals also have a Personal Allowance – currently set at £12,570 – and won’t pay income tax on any earnings that fall below this figure. Any income over this threshold will be liable for income tax at the relevant rate as well as National Insurance contributions.
This can all be very confusing, especially for those who are newly self-employed. We recommend consulting Worcester accountants like randall-payne.co.uk/services/accountancy/worcester-accountants/ to get a better understanding of your financial situation. They can complete your self-assessment, ensuring you submit accurate information and meet deadlines and requirements.
What Happens If I Fail to Disclose My Income?
If you didn’t tell HMRC about your income, even if it fell below the taxable threshold, you could be given a penalty. Furthermore, HMRC charges interest on late payments of tax owed, so this can mean you end up paying more than you would have done if you had submitted your return on time.
Be sure to declare that side hustle.
Gifts, freebies and tax for content creators
Side hustles on social media bring their own tax questions. Content creators, whether they post on YouTube, Instagram, TikTok or a blog, often receive gifts and products in return for endorsements. Some arrive without being requested, which makes it hard to know whether they count as income.
Some of these items are valuable, such as luxury goods or technology. When products are given instead of cash in return for promotion, HMRC treats them as payments in kind, which must be declared and taxed. Keeping a clear record of everything received, and what was expected in return, makes the tax return far easier.
Creators pay the same taxes as any other self employed person. Income tax is due on taxable income above the personal allowance, at basic, higher and additional rates. National Insurance may also be payable on profits, and if turnover goes above the VAT threshold you must register for VAT. Because these rules can be complicated, a qualified accountant is worth consulting to make sure everything is declared correctly.