If you make money alongside your main wage, chances are you’ll need to pay tax on it. Aaron Gilmore at TreyBridge Accountants has put together a simple tax guide to ensure that you always remain in HMRC”s good books.
Crafts and hobbies
There’s nothing quite like making money from a skill or craft that you enjoy. As for the tax side of it, it all depends on the scale of your sales activity. Luckily, there’s a fantastic thing in place called the Trading Allowance. This gives you the ability to sell up to £1,000 of items each financial year without paying tax on them.
A common example is someone who creates jewellery and sells it on Etsy but only now and then, with the turnover (the amount of money they make) being less than £1,000 a year. As long as their sales remain below the threshold, they don’t have to register for self-employment or pay tax on the profit.
If your items are getting a lot of attention and more people begin to buy your products, you need to keep track of how much money you make. Once you exceed the £1,000 Trading Allowance, you’ll have to register for self-assessment if you haven’t already.
Does this mean I’ll have to pay tax on sales?
Not necessarily, as we then have the Personal Allowance. This is the amount you can earn without paying any tax on it, which is currently £12,570 (for tax year 2021/22). This allowance considers all of your income, including that from employment, self-employment, renting out property, and so on.
If you stay below the threshold, you’ll need to submit a self-assessment tax return each year to HMRC but there won’t be any tax to pay.
Airbnb and rental income
Back in October 2020, Airbnb reported that many of the people who let out properties on its site hadn’t declared their income to the taxman. As with all other forms of earnings, any money you make from letting out a home through Airbnb or a similar site must be included in your self-assessment tax return.
With so many people not reporting the income they make from holiday rental properties, HMRC is now cracking down. If you haven’t reported income from a property that you let out to tourists and holidaymakers, tell HMRC right away and it will give you 90 days to pay your tax bill in full.
Failure to do this will result in interest and a fine being applied, plus HMRC retains the right to launch a criminal investigation that can cover your last two decades of accounts.
Cryptocurrency
If you hold any kind of crypto assets as part of your personal investment portfolio, you’ll be liable to pay tax. The tax you pay will be on any profits above your annual tax-free allowance (£12,570).
Whether you gain profits through cryptomining, airdrop, confirmation rewards or in the form of a salary from an employer, they need to be recorded as part of your tax return. On the other side of the (crypto)coin, capital losses from cryptocurrency can be considered for tax liability. In other words, if you sell the crypto for a loss, this loss of capital can be deducted to reduce your overall capital gain.
Tax is charged at 10% up to the basic rate (£37,700 to the degree the basic rate is not used) and 20% thereafter.
Ask Aaron anything
Aaron Gilmore is the owner of TreyBridge Accountants, which supports businesses large and small across the UK. If you’re making additional income through crafts, property, cryptocurrency or anything else and need expert tax advice, get in touch with him today for a free consultation.
