If you have a spare room, outbuilding or second home, Airbnb can be an excellent way to bring in additional income. But if you’re renting out a property, you need to be aware that the government now requires digital platforms, like Airbnb, to report on earnings above a certain threshold to HMRC.
Airbnb is booming, with over 91,000 listings in London alone. Other websites such as Vrbo, eBay, and Etsy have also made it possible to generate income.
On 1 January 2024, the government introduced legislation aimed at people using these platforms for money-making activities. This has led to some outlets reporting that the government is introducing a new “side-hustle tax” – however, this isn’t quite true.
In fact, no new tax laws are being introduced. Instead, HMRC has changed the way it monitors people with side hustles. As a result, they’re better placed to identify those who need to pay tax on additional income, which – if you earn money from a side hustle – could be you.
Read on to learn more about this change, how it might affect you, and the steps you may want to take in response.
There is no new side-hustle tax
According to the rules, as of the 2023/24 tax year, you don’t need to declare side-hustle earnings of less than £1,000.
If you’re earning more than £1,000, you’ll probably need to register as self-employed and declare this income through self-assessment.
Alternatively, if, for example, you rent out a property that you own with your spouse, you may want to incorporate a business together and receive your income through the business.
Depending on your situation, different tax laws will apply:
- If you’re self-employed and earn over £1,000, you will have to pay Income Tax at your marginal rate on any profits.
- If you run your side hustle through a business, you may need to pay some combination of Corporation Tax, Income Tax, and Dividend Tax.
As with all tax-related matters, the rules can be complex and subject to change, so it might be worth talking to a financial planner about the best way to receive your secondary income based on your personal situation. If you’re already working with an Amber River adviser, they will be able to help you.
The government has introduced new legislation for platforms like Airbnb
Since 1 January 2024, the government has required certain UK digital platforms to report information to HMRC about the income of sellers of goods and services on their platforms (with the seller receiving a copy). That said, if you make fewer than 30 transactions and sell items for less than a total of €2,000 or £1,700 through these platforms, your information won’t be passed on to HMRC.
This new legislation doesn’t change the tax rules outlined in the previous section. Instead, it gives HMRC more power to see taxable income earned through platforms like Airbnb and Etsy. The rule change will likely only affect you if you haven’t been declaring your additional income.
If you’re making more than £1,000 a year through a side hustle, you may need to pay more tax
Though the government hasn’t updated how tax works for side hustles, HMRC’s new access to data may mean if you’ve been earning more than £1,000 a year and not reporting and paying tax on this income, you might need to start doing so.
With this greater access to seller data on platforms like Airbnb and Etsy, the government is better positioned to understand income from these types of activities. They are also now more likely to spot undeclared income so, if you don’t report your earnings and pay the appropriate taxes, you could be faced with large tax bills or even fines.
Speaking to an Amber River adviser, and an accountant, could help you receive additional income in the most tax-efficient way. It can also give you the peace of mind that you’re doing everything by the book and won’t face any surprise bills or fines in the future.
Get in touch
If you have a side hustle and you’re worried about how this new rule may affect you, then speak to us today. To set up an initial appointment, call 0800 915 0000, or alternatively use our contact form here.
Disclaimer:
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK also have an impact on tax treatment.
