Christmas is well known for being an expensive time of year, with the cost of presents, festive food and other seasonal essentials quickly adding up.
With this in mind, many people turn to side hustles in the run-up to Christmas as a way to earn some extra money and give their bank balance a boost before the festive spending begins.
However, for those who are unfamiliar with completing their own tax returns, knowing how much tax they may owe on this additional income can be confusing.
From selling unwanted clothes on Vinted to creating and selling handmade Christmas wreaths, money earned through a side hustle may come with tax responsibilities.
Anyone earning more than £1,000 through a side hustle may need to register as self-employed and submit an annual Self Assessment tax return.
For those earning between £1,000 and £3,000, there may be an option to report their income through a simplified digital service rather than completing a full Self Assessment tax return, depending on their circumstances and the rules that apply.
If your earnings fall below the £1,000 threshold, you can generally benefit from the UK’s Trading Allowance, which lets individuals earn up to £1,000 in gross trading income without paying tax on it.
However, those whose side hustle turnover exceeds £90,000 may also need to consider VAT registration and whether they are required to charge VAT on their goods or services.
It is easy to overlook tax responsibilities when earning extra money on the side, particularly for those who are trying a side hustle for the first time.
Despite this, it is important to understand when tax may be due and how HMRC can identify income that has not been declared.
Missing the deadline to pay tax owed can lead to fines and additional penalties, with some charges increasing the longer the issue remains unresolved.
Even where no tax is payable, failing to submit a required Self Assessment tax return could still result in a £100 penalty.
For those who have left side hustle earnings undeclared over several years, HMRC may also seek to recover any outstanding tax owed.
HMRC can use automated systems and financial information to identify potential discrepancies between bank records, reported earnings and spending patterns.
In more serious cases involving significant tax evasion, this could lead to a criminal investigation and potential prosecution.
For this reason, seeking professional advice before starting a side hustle can help you understand your responsibilities and avoid unexpected tax problems further down the line.
Speaking to an accountant can make the tax implications of a festive side hustle much easier, helping you to understand what needs to be reported and when.
Our team can help you establish your tax position, understand the rules that apply to your earnings and feel more confident about managing your finances.
If you are planning to earn extra money through a winter side hustle and need guidance on tax, get in touch with our team.
