HOBBY BUSINESS TAX RULES: Use this guide to check whether you need to pay tax and how to pay it if you do.
Income tax may be due if you are using websites and apps to sell types of services such as:
- Odd job tasks like taxi driving, cleaning, gardening, or hairdressing.
- Renting out items of your personal equipment, such as power tools.
- Renting out part or all your home to visitors or tourists.
- Renting out your home, business premises, or any other property for work purposes.
As a rule this type of ‘sharing economy’ or ‘peer to peer’ (P2P) will not be your main job or full-time business. But, ‘hidden entrepreneurs’ selling services online like these may be liable for tax.
When You Need to Pay Tax
Generally, Income Tax is due on any profit you make from selling services on websites or apps. But, not if your total taxable income (including profits) is less than your Personal Allowance and any tax reliefs that you qualify for.
Note: Deduct the allowable expenses if you are self employed that you use to provide your service from taxable income.
When You Do Not Need to Pay Tax
As a rule, Income Tax is not due on occasional money earned from selling personal possessions online. The same applies to anything you do to cover your costs, such as carpooling.
Note: In some cases, there may be extra liabilities for paying Capital Gains Tax.
How to Pay Your Income Tax
Do your calculations to check if you need to pay Income Tax. If you determine that you owe tax, you can fill out a Self Assessment tax return.
Another option is to contact HMRC to declare all your income. This declaration must include anything you earned from selling services through online networks.
Note: Contact the Income Tax helpline if you need to confirm about paying Income Tax on any of your earnings.
Tax Relief: Rent a Room Scheme
Some people rent out furnished rooms of your home for non-business use. In these cases you may be eligible to claim tax relief through the Rent a Room scheme.
Trading Allowance for Online Business
The government introduced a new ‘trading allowance‘ for some individuals. It means people can operate a small online business without the need to register or pay tax. HMRC announced:
There is rapid growth in the digital and sharing economy. This means it is becoming easier for more people to become ‘micro-entrepreneurs’ and sell services online. But, for some, the current tax rules can seem daunting or complex.
Individuals who run a small size online businesses will qualify for the £1,000 trading allowance. UK Government announced the start of the new tax allowance for property and trading income takes full effect in the 2017/18 tax year.