HMRC can sometimes collect your tax through your tax code if you're employed as well as self-employed. It depends on how much you owe and how much you earn through employment. If you want to do it this way, you'll need to get your paper tax return filed by the 31st of October. If you're filing online instead, you'll have until the end of December. Either way, you'll have to specifically tell HMRC that you want to do it.
As for what counts as “additional income”, it all depends on what you’re doing, how often you’re doing it and how much you’re making from it. Let's say you started out with a hobby - something in the arts-and-crafts field, for instance. You post pictures of a few of your creations on social media, and get a surprising number of positive comments. A couple of people ask if you'd consider making something for them (paying your costs, of course), and are delighted when you do.
They're so delighted, in fact, that they post pictures of your stuff on their own pages. Soon enough, people you don't even know are asking you to make things. By now, they're actually offering you some pretty decent cash for your work. Before you know it, you've got an Etsy shop and with regular orders. You're buying materials to pursue your hobby, and you're getting more than your costs back. The thing is, the taxman has a word for this kind of hobby. He calls it “running a business” - and he wants his cut of your profits.
HMRC don't care if you sell a few possessions online or make a few quid out of your hobby on Etsy. You can make up to £1,000 a year this way and he'll usually give you no grief over it. However, if you sell things regularly, or make enough doing it, he'll want you to do some paperwork. This is where the Self Assessment tax return system comes in.
So, is your hobby a “business”? This isn't as simple a question as it might seem. Here are a few things to consider:
- Is your main goal to make money?
- Are you selling regularly or often?
- Are you buying stock or materials just to continue selling your products?
If you're answering yes to any of these, then HMRC might decide that what you do counts as a business. It's not always so cut-and-dried, though.
As mentioned above, there's a particular wrinkle in the rules for people who sell stuff casually online. If your income from things like online sales comes to under £1,000, you can use the new “trading allowance” system. Basically, this just means that you don't need to declare the income. However, there are a couple of twists and turns to be aware of here:
- If you're already on Self Assessment, you have to “make an election” to use your trading allowance. It doesn't just apply automatically, and you still have to declare the income.
- You can't use the allowance to claim you've made a loss. The most you can do is reduce your taxable income by £1,000, to a minimum of £0.
- If you claim the trading allowance, you can't also claim your normal expenses against your profits. It's one or the other. Similarly, if you've got 2 or more sources of income, you can't use normal expenses for one and a trading allowance for the other.
Just as there's a difference between selling the occasional unwanted possession on eBay and running a retail business through it, there's a difference between running a blog or podcast and being a professional journalist. You may not know exactly when you've crossed that very blurred line, but you can be sure HMRC's going to have an opinion on the matter.
Success stories about people making money from sites like YouTube and Patreon are encouraging more and more people to dive into some of the murkiest waters in the UK tax law swamp. There are worse things than alligators down there. If you're careless with the rules, you could find yourself dragged down to the bottom by an investigation from the taxman.
Some internet sites allow you to post videos or other original content on them. That's fair enough. In some cases, you can let those sites slap some paid advertising around your videos and split the money with them. That's still great - but you have to understand how HMRC thinks. You may very well consider that advertising revenue to be a little extra pocket money, but the taxman will quickly start to call it taxable income - and that means he'll be expecting it to show up on a Self Assessment tax return.
If you're using something like Patreon, you're actually taking money directly from people, not just getting your cut from an advertising network, to supply them with whatever your content or product is. They might be paying monthly or only whenever you put something out, but you're still making an income from it. It doesn't matter if you don't think of it as your "job". The point is there's money coming in and that means you have to declare it to HMRC. If your income is already over the personal allowance threshold then they're going to want a bite of it.
A lot of people simply assume that no one's ever going to catch them, or bother chasing them. They may even be right, but "I didn't think I'd get caught" is a weak defence against an HMRC tax-dodging accusation and it won't get you out of any of the nasty penalties that will be stacking up if you miss the deadlines for not filing your Self Assessment.
Of course, if you've got income you've probably got expenses, too. Again, there are rules you've got to get to grips with. If you're a photographer, buying a camera might count as a business expense now, rather than just something you bought for yourself. Taking a photo of your house and then claiming for the bricks would be a bad move, though.
The bottom line is you have to think about what you're doing. More specifically, think about how it looks to HMRC. When in doubt, get professional advice. Technology is moving faster than the law in many online areas and you don't want to end up on the wrong side of it as a test case.