HMRC must act now to defuse side hustle ‘time-bomb’

The Low Incomes Tax Reform Group (LITRG) is warning that the spectre of another ‘side hustle’ tax controversy looms as online platforms like eBay, Vinted and Deliveroo start sending reports to HMRC on the income of their sellers in January.  

In a new paper, LITRG warns that HMRC has failed to do enough to make sellers aware of the fact they may need to file a tax return and pay tax on their online trading income. Although there is no change to existing tax rules, HMRC will have more information on who is earning income using online platforms and therefore may be more likely to find out who owes tax on their earnings.¹  

Online Platforms – the changing landscape for the self-employed,² argues that the new reporting rules³ – which caused widespread confusion when they took effect from January 2024⁴ and fuelled the misconception that a new ‘side-hustle’ tax had been introduced – could cause chaos for taxpayers when the first reports are sent to HMRC and sellers in the New Year.⁵

LITRG’s concerns include:

Sellers receiving information on their activities from platforms based on a calendar year of activity, not by tax year, making it harder to understand and calculate when tax may be due.

• The lack of a standard reporting format, meaning sellers could receive different forms from different online platforms.

• Reports being produced during one of HMRC’s busiest times of the year, when it can be hardest to access help. LITRG is concerned that sellers could ignore the information, creating problems further down the line.

According to HMRC’s own impact assessment, up to 5 million ‘businesses who provide their services via digital platforms’ – including the self-employed – could be affected by these new reporting rules.⁶

LITRG is calling on HMRC to strengthen its guidance for those using online platforms. It wants to see the information HMRC and sellers receive standardised across platforms so users can easily understand it and report their earnings by tax year.

LITRG is also concerned that the exercise will uncover widespread non-compliance, especially when the reports are fully rolled out. LITRG argues that HMRC should take a ‘measured’ approach towards dealing with instances of non-compliance. While such problems may be widespread, the actual amounts of tax due may be small and in some cases, uneconomical to recover.⁷

Claire Thackaberry, LITRG Technical Officer, said:              

“There are just over three months to go until HMRC starts getting information about the income and activities of people who use online platforms to make money. We are concerned that we will see the same chaos and confusion that arose when the rules first came into effect.

“Time is running out for HMRC to defuse this ticking time bomb.

“The information that HMRC will receive from platforms will be presented by calendar year, therefore covering more than one tax year. This could make it more difficult to work out when tax is due. Many people will turn to HMRC for help. However, January is an extremely busy time for HMRC ahead of the self-assessment tax return deadline and this will make it harder to speak with someone.⁸

“Our concern is that people will either do nothing with the information they have been given or use it incorrectly, storing up problems for the future. HMRC needs to work with platforms and sellers to make this information as clear and easy to digest as possible so that people can comply with their tax responsibilities.

“It is in no one’s interest for sellers to be non-compliant. Failing to pay the tax that is due threatens livelihoods and can impact HMRC’s ‘tax gap’, which is the different between the amount HMRC expects to raise and the amount it actually gets.”