HMRC has introduced a new tool to help individuals with side hustles determine whether they owe income tax on their additional earnings. This comes ahead of significant changes in reporting rules for online platforms, set to take effect in January 2025.

The new rules will require online marketplaces, including social media platforms like YouTube and Twitch, to report earnings directly to HMRC from sellers and content creators.

How the HMRC tool works

The tool uses a simple step-by-step questionnaire to assess whether an individual earning additional income needs to file a self-assessment tax return.

It begins by asking if the user has received extra income from selling goods or services, renting property, or creating online content. If any other form of income is selected, a message clarifies that the tool is intended specifically for income from goods, services, or rentals.

If the tool determines that tax is owed, a green banner appears, advising the user to inform HMRC about the income. It also provides links to help individuals register for or complete a self-assessment tax return.

Why the new tool matters

Starting January 2025, online platforms will be legally required to report transaction data to HMRC for the previous calendar year. This will include earnings from individuals who sell goods, provide services, or create content.

The new rules mean that HMRC will have much greater visibility into online sales and income activity. Starting in 2025, platforms must submit this data by 31 January each year, covering at least part of the 2023/24 tax year.

For individuals earning extra income, this new level of reporting increases the need to ensure their tax affairs are up to date. Failure to report income correctly could result in additional scrutiny and penalties.

Staying on top of tax obligations

While the tool provides guidance for the current tax year, individuals should also ensure they have declared any historic earnings from previous years. Undeclared income from earlier tax periods could result in late payment interest, currently set at 7.25%, and penalties for failing to disclose earnings on time.

HMRC’s new tool is part of its broader strategy to tackle non-compliance and ensure those earning additional income meet their tax obligations. With online income on the rise, individuals are encouraged to use the tool to check whether they need to file a tax return. Taking proactive steps now can help avoid unexpected penalties or complications later on.

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