Pay All Your Taxes
The Chancellor of the Exchequer, Philip Hammond, has announced a consultation in the March Spring Statement. This consultation, which runs until June, is looking into ways to automatically collect tax on income earned from online trading platforms. According to a survey, only 27% of people who were earning income from the sharing economy knew they owed tax. This means that the majority of people are not paying as much income tax as they should be. Many people might not know how to navigate the tax system when it comes to earning extra money online.
You might not even know what “gig economy” or “sharing economy” means. Even so, you could still owe taxes to HMRC on money which you didn’t realize counts towards your taxable income. Or you might not have realized that you should be filing your own tax returns. Lots of people try to earn a bit of extra cash on the side without knowing that they need to report it to HMRC. Any earnings above a certain amount are taxable. Selling goods or services for money can count as trading. This means you should report this money to HMRC as earnings from self-employment.
The Gig Economy
The growing gig economy is a result of companies hiring workers who are self-employed rather than employees. The companies pay them for each “gig” rather than paying an hourly wage or annual salary. Around 5 million people work this way. Examples of gig economy businesses are Uber, Hermes, and Deliveroo. Drivers and riders offer their transportation or delivery services in exchange for payment. The company usually doesn’t report these gig-by-gig payments to HMRC, or arrange taxation through the PAYE scheme. It is the responsibility of the individual worker to keep track of their earnings and file a self-assessment tax return. They must register as a sole trader by 5th October in the second tax year of their continuous gig work. Then they must file a return for each tax year and pay any taxes they owe. If they don’t, they could receive large fines.
The Sharing Economy
It might seem obvious that cycling for a food delivery brand counts as a job. However, what many people might not realize is that selling items online can add up to taxable income. This includes selling your belongings on eBay or doing odd jobs with TaskRabbit. There is a difference between de-cluttering for pocket money and doing these things as a personal business, though. Creating items to sell on Etsy as a side business is not the same as listing some of your clothes on Depop. All of these things do come under the sharing economy umbrella. This simply means the smaller business of peer-to-peer acquisition via an online community platform. For example, renting out your property a few times a year on Airbnb. Since 2017, a new trading allowance was introduced in a similar vein to the personal allowance for income tax. Due to this, you might actually be fine.
Do You Owe Tax for Selling Online?
You are now allowed to earn up to £1000 in each tax year from trading your products or services for money. Anything above this, even £1, requires self-employment registration with HMRC. Any regular provision of goods or services for money counts as trading. You will need to keep records of your business for up to 5 years. The same goes for renting out all or a part of your property. It is also £1000 a year for the property allowance, which is separate from the trading allowance. It only applies to things like renting your garden or living room for an event. If you rent a bedroom in your property, you should apply for the Rent-a-Room scheme instead. This allows you to earn up to £7500 a year without having to pay any tax or submit a self-assessment tax return. By all means, everyone should be making the most out of their tax-free allowances for every tax year.
How Do I Pay Tax on These Earnings?
So you work in the gig economy or make money through the sharing economy. In the last tax year, from April 6th to April 5th, you earned more than £1000. What do you do now? First of all, you must register with HMRC. You can do this online or receive assistance over the phone if you call the Self-Employed or Self-Assessment helplines. Read our guides to find out how to get your Unique Taxpayer Reference number and submit your tax return before the deadline. The £1,000 allowances apply from 6th April 2017. Your tax returns for the period from 6th April 2017 to 5th April 2018 are due by 31st January 2019. This is the latest date for you to not only submit your returns, but pay any outstanding tax as well. Filling out a tax return and the risk of late fines can be stressful, but you just need to keep all your records in order and register with HMRC in time.