For a richer life

Making extra money – do I have to pay more tax?

Making extra money – do I have to pay more tax? Paula Steele/Flickr

We at Moneymagpie are all for encouraging you to go out there and make as much extra money as you can through any means possible (well… almost!). But on the whole, with extra income comes extra tax implications and it can be really tricky to work out for yourself whether or not you should be paying tax on your money-making schemes.

This guide is designed to give you an idea of when tax will start applying to any extra money you make. However, it can’t cover every individual circumstance. If you’re in any doubt, get personal advice from your local tax office. It’s always better to do this as soon as you think you need advice, rather than risk a load of worry and a hefty bill and/or fine later.

The basics

  • Everyone can earn a certain amount per year tax-free, but if you exceed this amount, you need to let the tax office (HMRC) know.
  • You need to register any new business within three months with HMRC, or you may be fined.
  • If in any doubt, consult your local tax office – they’ll be able to advise you fully.

Allowances

The first step is to work out whether your earnings (from any regular work combined with extra money making) exceed your personal income allowance. For the 2014–15 tax year, everyone has the right to make up to £10,000 without paying taxes (£10,500 for people 65–74 and £10,660 for those 75 and over). So, if your only income is from eBay selling, babysitting or something similar, and all the money you make doesn’t add up to more than this allowance, you don’t need to pay tax.taxallowance

However, this allowance is already taken into account if you work part-time or full-time and you’re paying tax using the PAYE scheme (when money is automatically deducted from your pay packet). So, unless your salary is under £10,000 a year, this means that you’ve already used up your personal allowance and therefore you should be paying tax on any extra money you make on top of your salary.

Personal allowances can vary depending on age, marital status and whether you have any disabilities so be sure to check out exactly what you’re entitled to here.

It’s important to remember that income from a pension is also taxable. So, if you’re a pensioner, you must take into account your annual pension and whether or not it exceeds your personal allowance. If it does, you should be paying tax on all other earnings. However, if the total of your pension and your extra earnings is less than your allowance, you’re tax free.

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Using eBay

ebay new logoAll that seems very clear and simple, but then it gets a bit trickier. For example a lot of people make money selling things on eBay. For those who do sell on eBay or other listings sites to make extra money, it can be difficult to distinguish between using the site to earn an income and using it merely to get rid of some junk. As Jane Moore from the Institute of Chartered Accountants in England and Wales (ICAEW) puts it: “Cash in the attic is not taxable, but the Revenue will know the difference between a clear-out and a small business.”

So if you’re selling on unwanted items every now and then, in theory you’re liable to be taxed on any profits, but usually small earnings will be ignored.

However, if you start to buy products to then sell on, or are regularly selling large amounts of your possessions then the rules change. Again, if your profits using listing sites or classified adverts, plus any other income/salary, do not exceed the £10,000 personal allowance in one year, you do not have to pay tax. But, if you make profits that exceed your personal allowance, or are an income on top of any salary or any other money making, you should be declaring them as they’re taxable.

Car-Ebay-Sell_optRegularly buying items to sell on at a profit on eBay or other sites is in effect a small business, and so it’s very important to keep a tab on profits and maintain clear records, including receipts of all your expenses which can be put against your profits for tax purposes. This way, HM Revenue and Customs will be able to accurately calculate how much tax you owe and you won’t end up paying too much. But if you do find yourself going from selling a few things here and there to developing a small business, then you must let HMRC know within three months. Otherwise you’re liable for a £100 fine.

If you’re making a tidy sum which exceeds your personal allowance, but you don’t think it qualifies as a small business, you still need to declare your profits as a new source of income within six months of the end of the financial year.  This gives HMRC time to send you a return, which you will have to complete in order to be taxed the correct amount. For details of how to declare a small business or new sources of income, check out the HMRC website.

Selling your skills

article-new_ehow_images_a07_ik_cf_open-acount-sell-stuff-ebay-800x800In the same way as selling your wares can gradually become a small business, so can maximising the money you can make from your personal skills. For example, if you’re a keen gardener and occasionally offer to help out friends and neighbours with their landscape design for a small fee, then any earnings are, in theory, taxable. However, these are usually ignored on the basis that they fall within your personal allowance.

However, when you start helping people on a regular basis whilst amassing a good profit, your hobby has really developed into a small business and any profits that exceed your personal allowance are taxable. As before, when a hobby becomes a business, you must declare it to the taxman within three months.

Capital gains

Capital gains tax is only going to be relevant for you if you’re selling any belongings that have increased in value whilst in your ownership, such as a piece of art or an antique.Tax

The first thing to know is that capital gains tax doesn’t apply to personal items worth less than £6,000, so if you’re selling it for less then it’s not taxable.

Secondly, there’s a separate annual personal allowance for CGT which is currently £10,900. This means that if you sell items like jewellery or shares that are worth over £6,000, you’re allowed to make up to £10,900 in profits (i.e. the difference between the price you paid for the item when you bought it and the price it was bought for from you), before CGT applies to you.

Items to watch out for are second homes (CGT does not apply to principal dwellings i.e. your own home), expensive artworks, fine jewellery, stocks & shares and land.

It doesn’t matter where or how you sell items that are taxable under capital gains – whether it’s eBay or Christie’s you should pay it. Click here for more on Capital Gains Tax.

Renting

rentingThe exception to the personal allowance rule is renting. Renting space, your house or your drive is always taxable, regardless of personal allowance. Saying this, a rental relief exemption does exist allowing you to make up to £4,250 annually from renting a room in the house in which you live.

However, if you want to rent your whole house, you have to pay tax on your profits and the same goes for renting your driveway. Often arrangements for renting a room or a driveway are made on a cash-in-hand basis. However, technically, you still should be declaring these earnings and paying tax on them. Don’t be fooled, HMRC is aware of big public events such as Wimbledon, so if you live next door to the All England Club and happen to deposit a large amount of cash shortly after the tournament, they’ll be on to you.

Small extra earners

surveys - sq

For those who do not earn a salary and have been making a bit of extra cash on the side by using cashback sites, online surveys and doing a spot of mystery shopping here and there, you’re probably not exceeding your personal allowance and so you don’t need to pay tax.

However, some of the larger companies that organise mystery shopping and online surveys will automatically take your tax and national insurance contributions out of your pay for you. This is great if you already earn a salary, as it means you don’t have to worry about your tax return, but if you aren’t exceeding your personal allowance, it’s money that you don’t need to pay. Fret not, you can get this money back in a jiffy by filling out this R40 form and sending it in, or by writing a letter to HMRC informing them of what’s happened (although this will probably take longer to process).

Extra earnings and PAYE

If you usually pay your taxes using the PAYE system and would prefer not to think about all this extra tax stuff that’s indeed mightily complicated, there’s something you can do to make it all go away. By changing your PAYE code with HMRC, your extra earnings can be taken into account when you’re taxed on your salary and so you won’t have to pay anything extra or fill out a return.paye

In order to change your PAYE code, you have to work out how much extra you’re earning and then contact HMRC who will help you sort it out. Although it sounds great, this solution is really only effective for the minority of cases for two reasons:

  • Firstly, your extra earnings can’t add up to more than £2,500, after which you really have to fill out a separate tax return.
  • Secondly, your extra earnings need to be quite stable so that you can pinpoint exactly how much you expect to earn in one tax year. If you’re renting a property at a set rate per month/annum, this is pretty easy. However, if you’re earning bits of cash here and there it becomes much more difficult to predict and you’ll end up either over or underpaying, which just leads to more form filling. Using your PAYE code to cover extra earnings also means that you pay your tax sooner as it comes out monthly, whereas your extra earnings could be sporadic – leaving you in the red some months.

Ways to make more money

If you’re looking for inspiration on how to make more money, make sure you check out Moneymagpie’s ways to make money section. We’ve got loads of ideas on how to bump up your bank balance!

Useful links

  • mrs b

    Hello I get paid weekly and last week did more hours than usual,my yearly salary is under £9000. Do I have to pay tax on those extra hours even though I won’t of exceeded the personal allowance??

  • umpire

    I am employed and in the 40 percent tax bracket. I have umpired a couple of cricket games for local league for 25 pounds expenses do I declare this on self assessment.

  • Joe

    I earn money from from outside the UK, and is not in the EU, its paid into an account in that country. If it is all outside of the UK, do i need to declare that? the work im doing is based in the UK, but its for overseas clients.

  • Jeanette Bennett

    I already have a full time job and wish to start a singing tribute act. I cannot know what I am going to earn extra and it may not even work, so how do I go about it. I’ve looked on the Government site and it looks totally confusing !

  • Manolis Gledsodakis

    This reply is too late for you but, for amyone else reading, yes, your setup costs are tax deductible, as are all and any expenses related to the business, such as stationery and other consumables, travelling costs, a percentage of your car maintenance if you use it for business, postage, business-related magazines and subscriptions, a percentage of home utilities if you have a home office – (the list is endless). So do keep ALL receipts for your bookkeeper.

    • Joe

      over 18 months for a reply… nice

  • james

    hello! i earn around 21000 a year in my full time job and pay tax through PAYE. i have the chance to earn around 6500 a year extra on a regular side job, whats the best way to do this? self assesment? start a small company? im clueless!

  • Jay

    I have started my own facebook tipping page and am starting up a premium group where members will pay £10 a month. Depending on my success, I could be earning an extra £500-£1000 a month. I’m concerned about how I go about this and if I have to declare this anywhere. If I do, it sounds like a lot of hassle so probably wont do it. Can anyone help at all?

  • andrew

    hello. i earn £29000 a year working full time. in the last few months ive started buying things on ebay to sell on at a profit and have even opened a basic shop on ebay. i generally make between £100-200 profit a month. how much tax will i have to pay on this?

    • Jasmine

      It’s likely that you will need to pay 20% if that is your net profit after you have taken all expenses off. Are you sure you’re putting all your expenses down? It’s worth speaking to an accountant about these earnings. You’re already over the tax threshold because of your day job so it’s important to put together as many expenses as possible for this extra earner. Are you putting in your computer costs, internet and phone bills (or part of them)? A good accountant could remind you of other expenses that you could include.

  • helloall11011 .

    So even if i am selling many of the same items but my profits don’t go over my personal allowance for the year, I don’t have to declare it?

  • dawn green

    My Husband gets pension credit and I am disabled. He is my full time
    carer. I receive DLA. So I assume this is classed as us being on
    benefits. I make small items with beads as a hobby and to pass the time.
    If I had a website and sold these items would it be classed as benefit
    fraud. I would hate to end up in trouble if i did. I find it therapeutic
    making the bits as I have arthritis among other health issues and it
    keeps my hands and fingers moving. Would I have to declare any income
    even though it may be as little as £10 a week.

  • Sara Pruce

    Hi I am working full time PAYE earning £21,000 before tax. I am also doing some work outside of the workplace which amounts to about £900 (may vary slightly) a year. Do I need to tell HMRC and if so does that mean a tax return needs to be filled each year, and would I also need to pay NI contributions? Or can my tax code be changed to accommodate the extra income? Thanks!

  • Kay

    Hi I have been doing ‘tests’ jobs for a usability company. It pays $10 a job but no job is guaranteed. I have been doing it for three weeks now and earnt $200 a week for about 8 hours work. My hubby works full time (£380 weekly) and we receive £125 a week Working/Child Tax credits weekly. The payments for the usability testing goes into Paypal every day (7 days after a test is complete). I dont want a fine for not declaring but if I do will I just lose tax credits? Im confused as what to do – whether the tests re worth doing. Thanks for your help

  • Stuart Aitken

    Hi,

    My son is involved in an online trading game. He can buy or earn certain virtual items through the game and also sell them on. He is doing well and starting to sell a few items. As he is still under 16, he is using our paypal account to do this. The amount earned is not vast, but do we need to declare this to the government as he is still a minor and the money is coming into our account?

    • Carl Brennand

      As the money is moving via your PayPal account, you are liable for any tax payments. However, if you’re talking about a few hundred pounds then tax-wise you shouldn’t need to worry. It’s always worth checking with HMRC if you’re unsure, though.

  • Abigail

    I was wondering if you give me advice on what to do? I’m 17 and currently in full time education. I’ve been planning on setting up a couple of online business selling retail goods that I buy from suppliers and manufacturers. Will I need to declare this? I don’t have a part time job and am hoping to make money through my online businesses.I am really confused about what to do :/

    • http://www.moneymagpie.com Moneymagpie

      Hi Abigail,

      You will only have to declare your earnings to HMRC if you make over £8,105 in the 2012-13 tax year (as that is the current tax-free personal allowance). Good luck with your online business!

  • Mike

    Hi, Im a bit confused what constitutes being a trader on EBAY according to the HMRC. I have been collecting wargames figures (lead soldiers) for over 30 years and I have accumulated a huge collection of many thousands. I no longer have the space for them and want to get rid of a large portion of my collection. Selling off this collection will take a long time as it is so varied and so I normally put 10-25 listings (either single figures or groups)on in a week, usually twice a month. I do not buy anything to resell, I have owned these miniatures for many years – the amount which I get a week varies from £25 to over £100. I dont consider myself a business despite putting these miniatures on ebay regularly – I just dont have the time or patience to put more than 10-25 listings on in a week. I dont think I make more than £3000 in a year selling bits of my old collection – is what I’m doing ok?

    • http://www.moneymagpie.com Moneymagpie

      Hi Mike,

      This is a slightly grey area! As you are not operating as an online business (buying more stock to sell on etc) then any small earnings you make would normally be ignored by HMRC.

      (As a collector, you might be able to make a case for your earnings to come under Capital Gains Tax – which currently allows an allowance of up to £10,600).

      However – each case is different. If you’re in doubt, the best thing to do is answer the questions over at http://www.hmrc.gov.uk/campaigns/emarket.htm This should let you know where you stand. If you still need help after that, there is a number for the HMRC on that link which you can call to talk to an HMRC adviser in person.

      • Mike

        Hi, Thank you for the reply. I just had a look on the HMRC site regarding capital gains tax and found that if the assets I am selling are personal possessions and under £6000 in a year then I am not liable to be taxed on them. Which I should fall well below this year. I’ve pasted the explanation from HMRC. Thanks!

        Are all assets liable to Capital Gains Tax?

        Most assets are liable to Capital Gains Tax when you sell or dispose of them – whether they’re in the UK or overseas.

        However, some assets are exempt, such as your car, personal possessions disposed of for £6,000 or less and, usually, your main home.

  • http://www.annettegisby.n3.net Annette Gisby

    Hi,

    I’m a writer, mostly selling my ebooks on places like smashwords. I don’t get a lot of royalties each month, maybe between 10-15 pounds, if that. I don’t know if I would need to register as self-employed, as I haven’t yet come anywhere near the personal allowance. (I have no other job.)

    From your article, it seems like I wouldn’t need to, but I’m still not sure :)

    Thanks,
    Annette

    • http://www.moneymagpie.com Moneymagpie

      Hi Annette,

      As long as your income doesn’t exceed your personal allowance, there’s no need to declare your ebook earnings. (Do bear in mind that if you receive any benefits, some benefits – such as Job Seekers’ Allowance – counts as taxable income, though).

      See http://www.hmrc.gov.uk/incometax/taxable-income.htm for the full list of taxable benefits.

  • Alaina

    I have registered a business name and got an abn as I intend on making extra money with beauty services from home. I have not yet earnt anything yet as it has only been a few weeks. I also work full time. Do I need to put this new business on my tax return even if I haven’t earnt anything yet??

    • Carl Brennand

      Hi Alaina,

      If you haven’t earned anything through your new business then you shouldn’t need to mention it on your tax return. However, it’s worth dropping HMRC a line and telling them the situation. That way you’re covered.

  • Joanna

    My ex partner works full time but in the side has an eBay account. Over the last year and a half he has made around £12,500 selling car parts . He isn’t declaring this to the taxman I’m quite sure he should be, and is obviously trying to avoid doing so as he has set the account up in a false name.
    My question is should he be paying tax on it and also he pays maintainable for our son through the csa. He refuses to see him by the way, should that extra income be taken into consideration by the csa when they make there calculation.
    Any advice would be great

  • Kerry

    Could someone help me, I’m confused. I work full time and earn around 16k before tax. I have an arts and craft type hobby & my friends have told me to sell my things. I have no idea how to go about it. I’ve just made myself a page on Facebook showing what I do and letting people know they can buy it, but do I need to register anywhere? There’s no way I’m going to make any profit for sometime as all the materials I’ve bought in the past including my sewing machine add up to a bit and as I never planned to sell anything I haven’t kept the receipts to show how much it all cost. Currently I’ve had no buyers, so what do I do about tax? I’ve had interest shown in my things, but nothing else. I’m just worried that as Ive set up a page showing I want to sell things And that I will get in trouble for not being registered anywhere even though I’ve made no money. Thank you.

    • cheapfragrances

      Hello Kerry,
      I would advise you register with eBay and try to sell your crafts there,don’t worry, if you sell a few a month is not a business so you don’t have to register anywhere and pay taxes unless you start massive sale,then you have to register your business with HM Revenue.Good Luck!

  • matt

    Hi, I am in full time education and I work part time. I earn about £7000 per year and I am thinking of selling on ebay. I estimate the turnover to be about £300 and the profit approximately £200 each month. So my income (from ebay) would not exceed £2500 in one year. Does it mean that I would not be required to become self employed?

    • Accountant

      Hello Matt,
      It depends as how much is your annual income. And how much tax (if any) you have paid in your part time work. If your total annual income is more than your personal allowance for that year then you have to pay tax and National insurance on it. For 2011-12 personal allowance for people aged below 65 was £7,475 and for 2012-13 it is £8,105.

  • helen james

    I am self employed and my car is at the end of her days,and i was thinking about renting a car and putting this against my tax. Do i have to earn a certain amount before i can do this? Is there anything else i should know? thanks

    • http://www.jasminebirtles.com Jasmine Birtles

      No you don’t have to earn a certain amount – if you’re working and earning then you’re fine. Good idea to put the rental against tax, although you will need to keep a log book (in the car ideally) writing down all the business mileage you do. Speak to your accountant – they may suggest you come up with a percentage of your total mileage as business expenses if you use your car for personal use too. It’s up to you how much you think you use for business and how much for yourself.

  • M Johnstone

    Some sellers worry about making a profit from selling on ebay and having to pay tax on it however sellers should be more worried about income from selling on ebay having an impact on any tax credits they currently receive.

    Any profit made from selling on ebay has to be declared as income when making a claim for tax credits and unlike income tax there is no tax allownace threshold.

    So all you sellers out there who make extra money from selling on ebay please remember to declare ALL income when making renewing your claim for tax credits.

  • Rebecca

    I’ve been making things on and off for a while as a hobby. I’ve done a few craft fairs, but usually about 1 once a year and barely make back the cost for the table. I do have a full time job earning over £17,000. I’m confused about whether I have to register as a business, because of the small amount that I make. Also do I need Public Liability Insurance?

    Thanks
    Rebecca

    • http://NA Maya Hart

      Hi Rebecca, I am in exactly the same situation as you. I think you do have to pay tax but not sure how. I think its best speaking to your enployer about this..?

  • Robin

    Hello,
    I wonder if you could help me.

    I work and pay tax via PAYE but I also earn a small amount from developing web sites as a small sideline. Approx £600 to £1200.

    I am getting worried ‘cos I have not registered anywhere and would like to be legit.

    Where do I do this and from when. I have been doing this for over 5 years.

    Thanks,

    Robin

    • Accountant

      Hello Robin,

      Any extra income earned has to be declared if its not taxed already. e.g. PAYE
      But first you will have to work out if your total income from all the sources in one year is more than your personal allowance for the respected year. If it is than you will have to work out if there was any profit after taking in to account all the expenses

  • Claire

    I want to register as self employed , I have been setting up a new site for affiliate marketing , I havent earnt anything yet , but its been up and running since march 2011 , I havent registered with HMRC yet or as self employed and am worried I have missed a deadline of the 5th oct 2011 , for a tax return.
    I want to backdate my business 3 months for tax credit purposes but as i have no profits will this affect me having to pay a penalty , new to all this stuff and got a rather large headache already!!!
    any comments would be valuable, thank-you.

    • Accountant

      Hello Claire,
      As there is no revenue you do not have to be worried much. I am certain HMRC will not penalise you. But its always advisable to call their helpline and register yourself from when you started self employment to fullproof yourself against any future revenue.

  • Linzi

    I know this is a long shot as to whether this is still being monitered but im so baffled I thought I’d give it a shot!

    Im currently working PT and earning around £5000-5500 anually. Ive started making jewellery to sell on and trying desperately to work out whether this needs declaring to someone or not?? Ive been doing this for around two months, and only just ‘in the black’ (by around £20) so i cant see this being a big earner, just a little extra cash to help with baby stuff lol. Can someone tell me whether I need to do something to avoid trouble later on, or can I continue without telling anyone?
    Thank You

  • dsmith

    For the last 5 years I have had a number of websites displaying advertising on them. The income from them is small. In total it never exceeds 1200 pounds a year. I do not work at present and I do not claim any benefits. I have no other source of income other than the use of the money my partner earns and pays tax on. Do i need to register my sites as a business, or as they earnings are below my tax threshold do i just carry on as is?

    • nathan

      you need to get yourself a job and stop leeching off your partner. you parasite……

      • jim

        Lovely reply from Nathan there. Clearly a bitter man.

  • yadge

    A few years ago I was told we could earn about £10,000 a year from buying and selling shares, anymore than this you would have to pay 40%. All I keerp getting from write ups is it depends on your circumstances. Does this mean we have to pay tax on everything.I am surprised that people still buy shares and are willing to sit and answer acomplicated form.

  • yadge

    nobody has anwered the question about how much can you make from shares before you pay tax. I thought someone told a few years ago it was about £10,000. What is it now? Don’t tell me we can’t make anything anymore, all I keep getting is it depends on your circumstances. Why is everything so complicated.

  • Rob

    Hiya Guys n Gals,

    Just read the above and would really like some advice

    In the past six months i’ve made about 4k selling bits and peices on eBay, from broken laptop parts to clothes which have been used by members of my household over the past Nine years and thus sold as spares or used items.

    Initially, these items would have been sold at a car boot and were being kept for the reason of selling on at a later period, but for a loss.

    The ultimate question is should I be declaring this to HMRC or am I ok to keep on selling these items that I personaly have bought that either dont fit me any more or have resulted in a case of ‘Surplus to Requirements’ due to an ‘Upgrade’ or ‘Relacement’?

    I fully understand that the HMRC is well above the Law, and whatever the TaxMan says, goes … for everyone, I just dont want to get in trouble.

    Your support would be much appreciated.

    Kind Regards

    Rob

    • Paul Prowse

      Hi Rob,

      The HMRC doesn’t tax you for a few sales if you’re just having a clear-out of unwanted items.

      They do tax you if you’re ‘trading’ however. (In a nutshell, ‘trading’ is buying goods with the intention of selling them on at a profit). The HMRC website provides full guidance on what constitutes trading – together with common examples.

      It doesn’t sound like you’re trading – however, if you look at the definition of ‘trading’ on HMRC it can be a little ambiguous (especially if substantial profits have been made). See the examples on the HMRC website and if you’re in any doubt, contact them – they will be able to quickly to put your mind at rest one way or another.

  • Dawn

    I am letting out a property for £100 less than the mortgage actually costs me each month – surely I don’t therefore need to pay tax on that?

    On another note, out of interest, if at another stage I am paying say £500 on the mortgage but getting in £1000 each month – I presume I am liable for tax on that – but I thought I could net it off in terms of maintenance/building works etc?

    Finally, This house was previously my main residence, but we moved out just before the recession and haven’t been able to sell at the right price since – I believe we have 3 years in which to sell it to avoid capital gains tax – but even past the 3 years, do we only pay capital gains on the difference between what we paid for it and what we now sell it for?

    Thanks!

  • Adam

    Hi,
    I just wanted to know if I need to declare to HM and revenue extra income I may start to earn from online surveying sites? I havent got any payments since payout threhold is £40 do I have to declare this if I get any payment?

    Im studying currenlty, Im 17 and doing my A levels

    thanks

    • Simon Willmore

      Hi Adam

      Firstly, are you definitely allowed to partake in these surveys as you are under 18?

      Any person in the UK under 65 should declare their earnings to HMRC, but unless you make over £6475 in a year you will not pay tax.

  • Steve

    Hi Guys,
    I know this is a bit of an old post, i’m not sure if it’s still being monitored or not?!

    I work full time and pay tax by PAYE, i’m doing a one off project outside of my normal hours/pay whichi will bring in at most a couple hundred pounds.

    It seems overkill to declare this? do i need to?

    • http://www.jasminebirtles.com Jasmine Birtles

      Hi Steve,

      I know what you mean – I would think the same way because it seems such a small amount. However, I know that HMRC are quite strict about it so I checked with the Chartered Institute of Taxation and this is what they said:

      Yes, I’m afraid you do. You don’t say if the payment is from your usual employer of from a third party. If it is from your usual employer then they should probably deduct PAYE. If it is from a third party for work not connected with an employment then it will probably be treated as income from self-employment. You should notify HMRC of the new source of income by 5 October after the tax year (you can do this online via their website). They may send you a tax return to complete or alternatively might include a deduction in your PAYE code.

      From Tina Riches, Director, Technical, CIOT

      So, there you have it! The important thing, though, is to keep all your expenses related to this extra earner. You then offset these expenses against your income from it and that will bring the tax down hugely, possibly to nothing.

  • Taneka Gehrki

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  • polyxena11

    No one really answered Richard’s question about when to register as self-employed after starting a business out of hobby. I too am trying to do the same but I’m spending more money on materials than actually making money. I don’t want my ‘self-employed/ status to affect my tax credits either, because we really need it to get by at the moments. It would be great if someone could give some insight. Thanks.

  • Clare

    I make jewellery as a hobby and several friends have suggested I sell it on ebay, advising I can make up to a certain amount before I’m taxed. However I think they may be confusing this with the Personal Allowance. I’m in full time employment paying tax, NI etc earning over 15,000. Am I right in thinking that even if I’m only making a small amount of extra cash I would still have to declare this, as I would not be selling on unwanted items but making them specifically to sell? It’s all so confusing!

    • http://www.jasminebirtles.com Jasmine Birtles

      Good question. In fact, so good that I’ve asked tax expert John Whiting from the Chartered Institute of Taxation to answer it properly. Here’s what he says:

      It sounds as if what you are planning will be regarded as a business and so you are right: you’ve already used up your tax-free personal tax allowance (currently £6,475) and so any profits that you make will be taxable. It would be treated as a self-employment, there would be a need for you to notify HMRC of your new activity and (if it really takes off!) you may end up having to register for VAT.

      If what you were doing was ‘selling on unwanted items’, which is what many people will be doing, then that wouldn’t rank as a business but might fall into the capital gains tax net. Even then, most things being sold won’t be caught for CGT: there are various exemptions, including chattels with an expected life of under 50 years and things which sell for under £6,000. What would typically be caught for CGT would be things like paintings and antiques – and even then there is the annual CGT exemption, currently £10,100.

      The dividing line between odd sales of bits and pieces and a business isn’t a precise one and can cause difficulties. In most cases it will be obvious that there is (or isn’t) a business, but what tips the activity into being a business are features such as:

      Frequency/volume of transactions
      Extra work done on the items in question
      Motive: what was the aim here; what other things does the taxpayer do

  • paula

    My friend is moving abroad for a while and she is renting the rooms in her flat, he’s asked to collect the rent son my account and then to transfer it to her account. If I do so, do I need to pay taxes on it? Will it look like I’m earning extra money?

  • http://www.jasminebirtles.com Jasmine Birtles

    Good questions Richard. I’ve put it on the Forum here http://www.moneymagpie.com/forums/topic.php?id=23&replies=1#post-103 to see if anyone has some good thoughts on it.

  • Richard

    I am thinking about starting up a business born out of a hobby, I work fulltime, pay NI, Tax etc. Am I right in assuming I would have to register the project as a Business within 3 months, and if so, when would they consider the 3 months starting from? First Pay check? It could be a year until i would see a paying customer. I am thinking of advertising, but it may amount to nothing, so what would the best advise be and also any idea as to how much they might want…. for instance if the business bought in 10k a year.

  • http://www.jasminebirtles.com Jasmine Birtles

    I think you should probably get public liability insurance as you will have children in your own home – you never know what could happen. As for declaring it, it does sound to me like just covering costs so it probably isn’t worth it, although if you end up doing this every week for months on end then it will become a small business. In which case you should speak to the HMRC (www.hmrc.gov.uk) and get advice from them. You would probably need to get a separate tax code and make sure you keep receipts for expenses and records of money coming in.

  • Lizzie

    I wanted to set up an art club for the children in my street where I live (over the summer holidays), I would only charge £5 per child per session to cover materials and refreshments. Would I have to register with anyone or declare what I earn even if it is to pay for the supplies? Also would I need insurance to have the children in my home? I am training to be a teacher so have had criminal record checks, I also will know the parents of the children as they live in my street.

  • http://www.jasminebirtles.com Jasmine Birtles

    Not exactly Steve! However, they do make spot checks regularly. If you haven’t declared substantial amounts of income you can get yourself into really hot water later on.

  • steve

    In this article, (Don’t be fooled, HMRC is aware of big public events such as Wimbledon, so if you live next door to the All England Club and happen to deposit a large amount of cash shortly after the championship, they’ll be on to you.) Does this mean HMRC have a live feed to everyone’s bank accounts, so they can see how much goes into your account, and when?

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