This article was updated on 27.11.2023
For anyone with a side hustle, whether that’s making extra income from Airbnb, getting assignments through a freelancer jobs platform or selling items on Ebay, HMRC will have more data on your income
Starting January 1, 2024, Her Majesty’s Revenue and Customs (HMRC) will implement a new rule that will require freelancer platforms to report their users’ earnings to the tax office. This rule is designed to crack down on tax evasion and ensure that everyone is paying their fair share.
The rule will apply to all freelancer platforms that operate in the UK, including popular platforms such as Upwork, Fiverr, Airbnb, and Uber. These platforms will be required to report to HMRC the total amount of income that each user earns through their platform.
If there is a discrepancy between what the platform and the seller have reported, the tax office could have grounds to investigate the individual, according to contractor insurer Qdos. This could also imply that HMRC could look retrospectively at your earnings for previous years and what you have reported to HMRC.
Don’t look at the new rules as a threat
Rather than look at these rules as a threat, freelancers using platforms should take advantage of the fact that the platform can provide you with up-to-date information on your earnings to date since joining the platform and what you owe in tax. Using this information can help you set up a standard order to a separate savings account set aside for your tax. Some freelancers on the other hand prefer to set up a direct debit with HMRC to pay a certain amount every month to go towards their expected tax bill. That way come time to pay your bill in full you will not have such a sizeable amount to pay and will receive a refund if you have overpaid.
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HMRC will then use this information to identify taxpayers who may be under-reporting their income. If HMRC finds that a taxpayer has not reported all of their income, they may be subject to a penalty or even prosecution.
The new rule is part of a wider effort by HMRC to clamp down on tax evasion. In recent years, HMRC has increased its focus on the gig economy, where many people are now working as freelancers or contractors.
HMRC says that the new rule is necessary to ensure that everyone is paying their fair share of tax. The agency says that it is estimated that £1.2 billion in tax is lost each year due to tax evasion in the gig economy.
The new rule has been welcomed by some tax experts, who say that it will help to create a fairer tax system. However, other experts have expressed concerns about the rule, saying that it could be burdensome for freelancer platforms and that it could lead to an increase in tax audits.
What does this mean for freelancers and side hustlers?
If you are a freelancer or side hustler, you should be aware of the new rule and make sure that you are reporting all of your income to HMRC.
If you earn more than £1,000 from freelancing or side hustling in a tax year, you must register as self-employed with HMRC. You will then need to file a self-assessment tax return each year and pay any tax that you owe. This is regardless if you earn more than £1000 as a freelance consultant or dog walker.
The new rule does not change your obligation to report your income to HMRC. However, it does mean that HMRC will have more information about your earnings, so it is important to make sure that you are reporting all of your income accurately. There could be a chance that HMRC could ask the platform you work for to provide earnings to date including multiple years.
How can you prepare for the new rule?
- Make sure that you are registered as self-employed with HMRC
- Keep accurate records of your income and expenses so you can file them.
- Take advantage of your freelance job platform’s reporting capabilities to help you determine your monthly and yearly earnings and tax obligations
- File a self-assessment tax return each year and pay any tax that you owe.
- If you have any questions about the new rule or your tax obligations, contact HMRC for advice. If you are concerned that your worker status has been jeopardised (inside v. outside IR35) due to the recruitment agency, end client or umbrella company you get paid through, seek professional advice from contractor insurers including IR35 Shield and Qdos. If you want to ensure your worker status is correct or you are receiving the correct amount of holiday pay or not have your pay cheque skimmed in some way contact either PayePass or Contractor Voice.
HMRC has also published a number of resources to help freelancers and side hustlers understand their tax obligations. These resources can be found on the HMRC website.