Side hustle. Tax?

A pup from a favourite black labradoodle. Speciality cakes on a Facebook page. Perhaps you had space to branch out during lockdown: perhaps you need to advise a family member. What’s the position with tax?

Trading?

It can be difficult sometimes to know where a hobby stops and a trade begins. But where there’s any question of additional income, it’s not always appreciated that HMRC may need to be told. This applies to all sorts of fairly informal arrangements, from making sales online to taking on casual jobs like dog walking, gardening or babysitting: even renting out property or part of the home.

The questions HMRC will have are: has this person effectively set up a business, and does this amount to trading income, or property income? To decide, there are particular signs HMRC looks for. These are sometimes called the ‘badges of trade’. They include the intention to make a profit, the number of transactions, and the way sales are carried out.

Notification may be needed for additional income not from someone’s usual employer or business. Please do discuss additional income with us when the self assessment tax returns are being prepared. We are happy to advise whether income should be disclosed, and if so, the appropriate timescale for action.

Taxable?

Some casual income may be covered by special rules: there are two fairly new allowances, the Property Allowance and Trading Allowance, which may be available to cover small amounts received. Each provides up to £1,000 per annum tax-free, and someone with both types of income can use both the allowances. Where annual gross property/trading income is £1,000 or less, there is no need to tell HMRC, or declare the income on a tax return: though depending on other income, there may still be a need for a tax return. And where someone has trading income, there are also circumstances when they may need to register for self assessment and complete a return.

Again, depending on circumstances, it may be that these allowances don’t provide the most tax efficient means of dealing with income and expenses. Do please contact us if you need further information here, or on any similar issue.