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

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 difference between the amount HMRC expects to raise and the amount it actually gets.”

Notes for editors

1. LITRG has produced a flowchart to help online platform users to understand the tax rules that might apply to them.
2. Online Platforms – the changing landscape for the self-employed | Low Incomes Tax Reform Group (litrg.org.uk)
3. The new rules implement the OECD’s “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy”.
4. There is no new ‘side hustle tax’, say tax experts (LITRG press release, 4 January 2024)
5. The new OECD reporting requirements require most online platforms to send HMRC information including income where someone is selling a service or where an online trader selling goods, has earned more than €2,000 or had more than 30 transactions over a calendar year. The online platforms also need to provide sellers with a report. First reports for both HMRC and mainly new online traders will be due in January 2025 for the 2024 calendar year. Most other online traders will start receiving reports from January 2026 for the 2025 calendar year.
6. HMRC’s impact assessment from 20 July 2023 says that the rules are ‘expected to have a significant combined impact on an estimated 2-5 million businesses’.
7. HMRC’s 20 July 2023 impact assessment follows on from the above (note 6) to say ‘the impact for each seller is expected to be small’. Hence, it may be uneconomical for HMRC to recover small amounts.
8. January is a peak time on the HMRC helplines because of the main tax return deadline of 31 January.

Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. 

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 20,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.