Although it was originally recorded in use in the 1900s, the expression ‘side hustle’ has been increasingly used in the present century. Various definitions can be found, but generally this will be along the lines of an activity carried out for income to supplement that received from a main source.
One of the most popular means of generating additional income is by selling goods or services online through marketplaces such as eBay, Amazon, Etsy and others. Assuming their sales efforts are successful, an individual must then consider whether the income generated is subject to tax. This could potentially be income tax, capital gains tax (CGT) and if the £90,000 registration threshold for all sources is exceeded, value added tax (VAT).
Non-Trading
There will be online sales that clearly will not be seen as trading – most commonly, this might be by selling unwanted items (e.g., clothing, ornaments, etc.), that have been owned for some time and were not purchased with a view to being sold. Although the profit (if there is any) from such sales – maybe after clearing the loft or garage – would not be subject to income tax, CGT could apply if more expensive items are sold.
Chattels (i.e., personal possessions) are exempt unless sold for more than £6,000, a limit that applies to single items and sets such as chess pieces, books by the same author or on the same subject or matching ornaments. Special rules apply in calculating the taxable gain for chattels.
Trading
Individuals who are buying, making or perhaps ‘upcycling’ items and then selling them online will potentially be subject to income tax and National Insurance contributions (NICs) in the same way as anyone carrying on a trade or profession. The same will apply to those providing a service they advertise online. HMRC gives examples of gardening and repairs, dog walking, taxi driving, delivering food, tutoring, babysitting and nannying, hiring out equipment, and creating online content. Once such activities are being done with a view to making a profit, it is likely that a trade is being carried on and HMRC may need to be advised, and a tax return completed.
There is a trading allowance of £1,000, which can be set against income from such activities, and if gross income is below that threshold, the sales do not have to be reported to HMRC. Above this amount, the allowance can be deducted from the gross income and tax and NICs paid on the excess as applicable. Instead of claiming the trading allowance, any expenses incurred wholly and exclusively in carrying on the activity can be deducted to calculate the taxable income. If a loss arises, it may be beneficial not to claim the allowance because the loss could be deducted from other income in calculating overall income tax liability.
Information Disclosure
Since 1 January 2024, online marketplaces have been obliged to collect details of individuals and their sales activity, and this may be reported to HMRC if there are more than 30 sales in a calendar year which generate income of more than 2,000 euros (about £1,700). HMRC will be able to check this information against an individual’s tax return, and interest and penalties may be added to undeclared tax and NICs liabilities. On the plus side, the marketplace must provide the seller with a copy of the information that has been sent to HMRC so this should help with the preparation of a tax return.
In conclusion, income and expenses relating to online activities should be accurately recorded to determine whether and how there is a taxable profit to be declared.
Practical Tip
As well as trading income, the principles above will also apply to income from land or property, such as renting a room or even the use of a driveway for parking, which may be done through an online platform.