Side hustle warning for anyone making extra cash – what to do now to avoid big bill | The Sun

ANYONE making extra cash outside their day job could face a big bill unless they act soon.

More and more people are turning to side hustles to boost their income or turn their hobby into a lucrative career.

But many may not be aware they could owe cash to the taxman.

When you're employed the company you work for takes the tax from your earnings and pays HMRC so you don't have to.

But anyone earning extra cash, for example from selling things online or dog walking, may have to do it themselves.

If you earn more than £1,000 extra a year, you’ll need to pay tax on your earnings. 

Read more on side hustles

I’ve made £2.3k in 6 weeks from side hustle – it started as unwanted Xmas gift

I’m a mum and earn £500 a month with my side hustle – it’s really easy

Sarah Coles, personal finance expert at Hargreaves Lansdown, told The Sun: "The good news is that if you make £1,000 or less from your side hustle in any one tax year, you can take advantage of a special tax-free trading allowance from the taxman.

"That means you don’t need to submit a tax return for this income, and you don’t have to pay any tax."

But anyone earning over that amount should be reporting their income to HMRC.

To do this they need to file a self assessment tax return – and there are some key deadlines to be aware of.

Most read in Money

Sarah said: "If you make over £1,000 you will need to register as being self employed for this bit of your income.

"Don’t worry, in the weird world of the taxman you can be employed and self-employed at the same time.

"It just means when you do your tax return you need to put information from your employer in there alongside information about your side hustle."

You can decide not to use the allowance and instead deduct expenses you incur, and then pay tax on the remaining profit.

Sarah said: "You have to pick one of them, but it’s worth working out which one is best for your business.

"Essentially if you spend less than £1,000 on your business, you’re better off using the allowance."

If you fail to file a tax return you could end up with a surprise bill from HMRC later on asking you to pay the tax you owe – plus extra fees on top.

There's a minimum fee of £100 if you file a tax return late. There are also further daily charges if you leave it too long which can be up to £900.

If you're six months late, there's a further £300 fine or 5% of the money you owe – whichever is higher.

And after 12 months, another £300 or 5% fine applies. Interest on the outstanding balance is also added on top of this.

You could end up with extra charges that run into thousands of pounds.

When do I tell the taxman about money I make from a side hustle?

The final date for filing a tax return is January 31 each year if you are doing it online.

The information you are giving is for the previous tax year.

So you need to file a tax return for the year up to April 5, 2022 by January 31, 2023.

If you want to complete a paper tax return there's an earlier date of October 31.

You also need to sign up with HMRC to be able to file a tax return either online or on paper if you never have done before.

The deadline for this is October 5, which has already passed – but don't panic.

Sarah said: "If you’ve missed the deadline, don’t panic, just register as soon as possible. HMRC won’t usually penalise you for registering late as long as you pay on time.

"There can be a long gap between making the money and paying tax on it, so you need to plan for this.

"If you made your first self-employed cash in May this year, for example, you wouldn’t have to pay the tax until January next year, so it’s vital you put the money aside so you don’t end up with a shortfall when the time comes to pay your tax bill."

How to file a tax return

If you haven't yet registered for an account, you should do so straight away as this can take some time.

To register for self-assessment, visit the GOV.UK website and complete the identification process.

You'll then be sent an activation code in the post, which can take 10 days in the UK, or 21 days if you're abroad.

Once the code arrives, you need to activate the account within 28 days, otherwise it will expire and you'll need to request another one.

Once you've registered, you'll need to collect all the documents and information you need to be able to complete the tax return.

This includes your 10-digit Unique Taxpayer Reference (UTR) and your National Insurance number.

If you can't find your UTR, you can request a new one here.

Once you've done this you'll be able to log in to complete your online tax return.

You can also file it by paper but the deadline for that is fast approaching on October 31. 

If you need help with your return, visit the GOV.UK website or call the helpline on 0300 200 3310.

There are HMRC guidance notes and manuals online, but if you're struggling you could seek advice from an accountant or tax adviser.

Consumer group Which? also offers an online self-assessment tool that does the calculations for a tax return and submits it directly to HMRC.

You have to fork out £10 for the service though, or £36 if you're not a member.

How much tax will I pay?

How much tax you pay over this amount will depend on your overall earnings.

On top of the £1,000 trading allowance, you also get a personal tax-free allowance.

In the current tax year – which runs from April 6 2022 to April 5 2023 – the figure is £12,570.

On earnings between £12,570 and £50,270, you pay the basic income tax rate of 20%.

Money you make over £50,271 and above are taxed at 40%.

Read More on The Sun

Popular flavour Quality Street axed in 2018 is back – but there’s a catch

I’m a mum-of-3 at 20 – questions anyone wanting to be a young mum should ask

The additional rate of income tax, which applies to earnings above £150,000, is 45%.

Anyone who earns over £100,000 does not get any tax-free personal allowance – they will pay income tax on everything they earn.

Source: Read Full Article