Since the first Covid-19 lockdown, many have looked further afield to earn some extra cash, whether that be selling baked goods, shifting second-hand clothes or tutoring online. However, new research suggests that more than a quarter of those with a second source of income are accidentally dodging tax.
Find out below how much tax you might potentially owe HMRC if you have a side hustle.
Do you have a side hustle?
Accidental Tax Dodgers
Results
Because you have no side hustle
If you do start up a side business and begin making more than £1,000 in profits, the government will expect you to submit a self-assessment tax form. You will face penalties if you miss a deadline for submitting it or paying your bill.
You will get a penalty of £100 if your tax return is up to three months late. If it’s later than three months, the penalty will be increased and you’ll be charged interest on late payments.
Those who deliberately conceal their need to pay tax face higher charges of up to 100% and in some extreme cases, evasion of income tax can result in six months in prison.
If you do start up your own side business at any point, always do your research and be sure you aren’t accidentally tax dodging.
Because you earned less than £1,000 on your side hustle
You do not need to pay tax on it.
If you do start making more than £1,000 in profits through your side business, the government expects you to submitted a self-assessment tax form. You will face penalties if you miss a deadline for submitting it or paying your bill.
You will get a penalty of £100 if your tax return is up to three months late. If it’s later than three months, the penalty will be increased and you’ll be charged interest on late payments.
Those who deliberately conceal their need to pay tax face higher charges of up to 100% and in some extreme cases, evasion of income tax can result in six months in prison.
If you do start up your own side business at any point, always do your research and be sure you aren’t accidentally tax dodging.
You currently pay in tax
You might owe HMRC in tax
As your side hustle takes you over the £12,500 Personal Allowance, you will be able to split the annual allowance, so you only pay tax on the income that is above £12,500 each year.
You currently pay in tax
You might owe HMRC in tax
HMRC expects that you will have registered and submitted a self-assessment tax form, as you are earning more than the £1,000 tax-free threshold.
You have two options available from here: you can either deduct the £1,000 allowance from your annual income and pay tax on the remaining, or you can instead deduct allowable expenses and pay tax on the profits.
You currently do not need to be paying tax as your main income and your side hustle profits make up less than the current Personal Allowance of £12,500.
However, if you do start making more than this each year, HMRC expects you to update your self-assessment tax form. If you miss a deadline for submitting it or pay your bill late, you will face penalties.
You will get a penalty of £100 if your tax return is up to three months late. If it’s later than three months, the penalty will be increased, and you’ll be charged interest on late payments.
Disclaimer: this is a guide, not to be taken as fact. You should check with a financial advisor or accountant to ensure you're paying the correct amount of tax.
