To improve tax compliance and counter tax evasion, Her Majesty’s Revenue and Customs (HMRC) will implement a new regulation effective from January 1, 2024. This significant change requires freelancer platforms to provide detailed income reports to tax authorities. This regulation will have a far-reaching impact on individuals engaged in side hustles, including activities such as Airbnb property rentals, securing gig assignments on freelancer platforms, and participating in online commerce via platforms like eBay.
The regulation extends its reach across all freelancer platforms operating within the United Kingdom, including industry leaders such as Upwork, Fiverr, Airbnb, and Uber. These platforms are now obligated to furnish HMRC with comprehensive reports detailing the total income generated by their users.
This regulation empowers HMRC to scrutinize individuals who may be underreporting their income. Non-compliance may result in penalties or legal action. HMRC’s goal with this initiative is to strengthen efforts in combating tax evasion, with a particular focus on the growing gig economy, where more people are embracing freelance and contract work.
HMRC emphasizes that this regulation is essential to ensure fair tax contributions from all quarters. According to their estimates, tax losses in the gig economy amount to approximately £1.2 billion annually due to tax evasion.
While some tax experts support this regulation as a step toward a fairer tax system, others have expressed concerns about potential burdens on freelancer platforms and increased likelihood of tax audits.
Implications for Freelancers and Side Hustlers:
Freelancers and side hustlers must stay informed about this regulation to remain compliant. Accurate income reporting to HMRC is imperative.
If your earnings from freelancing or side hustles surpass £1,000 in a tax year, you must register as self-employed with HMRC. Subsequently, you must file an annual self-assessment tax return and settle any applicable tax liabilities. This obligation applies universally, whether you earn over £1,000 as a freelance consultant or from activities such as dog walking.
It’s essential to understand that the new regulation doesn’t change your obligation to report income. However, it grants HMRC access to more comprehensive data about your earnings, necessitating precise and honest income reporting.
Preparation for the New Regulation:
Here are the steps you can take to prepare for this new regulation:
- Ensure you are registered as self-employed with HMRC.
- Maintain meticulous records of your income and expenses, as they are crucial for accurate reporting.
- Regularly file a self-assessment tax return and settle any outstanding tax payments.
- If you have questions or uncertainties about the new regulation or your tax responsibilities, do not hesitate to contact HMRC for guidance.
HMRC offers a wealth of resources to assist freelancers and side hustlers in comprehending and fulfilling their tax obligations. These resources are easily accessible on the HMRC website.