PEOPLE are only just realising that their side hustle could land them with an unexpected bill.
Many households have been left feeling strapped for cash and are searching for ways to boost their bank balance.
GettyPeople are just realising that their side hustle could land them with a big bill[/caption]
The good news is, there are plenty of simple ways to earn some additional income – but you need to know the rules.
Stephen Moor, head of employment at law firm Ashfords, said some people may not be aware that they could owe money to the taxman.
He said: “Caution should be taken if you’re earning an additional income, as this is likely to be taxable.
“The side hustle could be treated as taxable trading income, which can include providing services or selling products.”
When you’re employed the company you work for takes the tax from your earnings and pays HMRC so you don’t have to.
But anyone earning extra cash, for example from selling things online or dog walking, may have to do it themselves.
If you earn more than £1,000 extra a year, you’ll need to pay tax on your earnings.
Stephen added: “You need to register for a self-assessment at HMRC to ensure you are paying the correct amount of tax.
“The applicable tax bands and the amount of tax you need to pay will depend on your income.”
If you fail to file a tax return you could end up with a surprise bill from HMRC later on asking you to pay the tax you owe – plus extra fees on top.
Stephen said: “If you are late for filing a tax return, you could incur a penalty charge.
” Penalties can also be charged if you do not account properly for the full amount of tax you owe.
“The level of penalty will be dependent on why you failed to account for the correct amount of tax, for example, if it was deliberate or not.”
There’s a minimum fee of £100 if you file a tax return late. There are also further daily charges if you leave it too long which can be up to £900.
If you’re six months late, there’s a further £300 fine or 5% of the money you owe – whichever is higher.
And after 12 months, another £300 or 5% fine applies. Interest on the outstanding balance is also added on top of this.
You could end up with extra charges that run into thousands of pounds.
When do I tell the taxman about money I make from a side hustle?
The final date for filing a tax return is January 31 each year if you are doing it online.
The information you are giving is for the previous tax year.
So you need to file a tax return for the year up to April 5, 2022 by January 31, 2023.
If you want to complete a paper tax return there’s an earlier date of October 31.
You also need to sign up with HMRC to be able to file a tax return either online or on paper if you never have done before.
How to file a tax return
If you haven’t yet registered for an account, you should do so straight away as this can take some time.
To register for self-assessment, visit the GOV.UK website and complete the identification process.
You’ll then be sent an activation code in the post, which can take ten days in the UK, or 21 days if you’re abroad.
Once the code arrives, you need to activate the account within 28 days, otherwise it will expire and you’ll need to request another one.
Once you’ve registered, you’ll need to collect all the documents and information you need to be able to complete the tax return.
This includes your 10-digit Unique Taxpayer Reference (UTR) and your National Insurance number.
If you can’t find your UTR, you can request a new one here.
Once you’ve done this you’ll be able to log in to complete your online tax return.
You can also file it by paper but the deadline for that is fast approaching on October 31.
If you need help with your return, visit the GOV.UK website or call the helpline on 0300 200 3310.
There are HMRC guidance notes and manuals online, but if you’re struggling you could seek advice from an accountant or tax adviser, but you will have to pay for their services.
How much tax will I pay?
How much tax you pay over this amount will depend on your overall earnings.
On top of the £1,000 trading allowance, you also get a personal tax-free allowance.
In the current tax year – which runs from April 6 2023 to April 5 2024 – the figure is £12,570.
On earnings between £12,570 and £50,270, you pay the basic income tax rate of 20%.
Money you make over £50,271 and above are taxed at 40%.
The additional rate of income tax, which applies to earnings above £150,000, is 45%.
Anyone who earns over £100,000 does not get any tax-free personal allowance – they will pay income tax on everything they earn.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]