What are the Model Reporting Rules affecting 'side hustles'?

A tax change which came into effect on New Year’s Day means millions of people with side hustles can expect greater scrutiny from HMRC.

From 1st January, digital platforms and websites – like Uber, Airbnb and Vinted – became responsible for recording the income made by ‘sellers’ and, in time, will share this with HMRC. This is because the UK has adopted reporting rules from the Organisation for Economic Cooperation and Development (OECD).

Under these rules, digital platforms and websites must share this information with tax authorities in different jurisdictions. 

Even if you’re relatively new to freelancing – or you have been renting out a spare room via Airbnb or selling second-hand clothes for years – these changes could easily affect you. 

Here, we explain exactly what this means and how to protect yourself from the Model Reporting Rules. 

 

 

What’s happening and am I affected?

In short, the UK has implemented a new framework – the OECD Model Rules for Reporting by Digital Platforms. 

Also referred to as the Model Reporting Rules, the framework means that digital platforms – Airbnb, Uber, Deliveroo, Vinted and Depop, among others – are required to share user income details with the relevant tax authorities.

The main aim of adopting these rules is to “help taxpayers get their tax right first time”, according to the government’s policy page. But it goes without saying that the rules are also in place to help HMRC “bear down on tax evasion” and increase tax revenues.

Users of these platforms making more than 30 sales a year, or revenue of €2000 (around £1700) or more will have their income recorded. The platforms must share these users’ information with HMRC from January 2025 – giving them a year to adjust to the “significant impact” of the change.

 

 

How will it work in practice?

Essentially, digital platforms must now share certain information about their users with HMRC, or other relevant tax authorities signed up to the framework, where those users live or earn in other jurisdictions. This means the rules apply in the UK and also overseas. 

Information to be shared includes bank account details, names, addresses, annual earnings and tax identification numbers. The platforms will collect and collate this data before sharing it with HMRC.

Previously, HMRC could request this information at any time. The change means the tax authority will now receive it automatically, on an annual basis. 

 

 

What do I need to do if I am affected?

There’s a lot of speculation about this so-called ‘side hustle tax’, but in reality, these rules don’t mean individuals need to necessarily do anything different. 

The gist of it is that income earned from digital platforms will be visible to the tax office. So if you’re earning above the tax-free Minimum Trading Allowance (£1,000), you’ll need to start reporting your earnings to HMRC via the self-assessment. 

With even more information at its fingertips, HMRC will have no hesitation in scrutinising the tax returns of individuals if they don’t match up to the income reported by digital platforms. 

Therefore, compliance is essential… 

 

 

How can I protect myself from this change?

First and foremost, prioritise your tax compliance. 

While the Model Reporting Rules aren’t a new tax, they are a timely reminder for many part-time self-employed workers that they need to manage their tax affairs properly. 

The second layer of protection is insurance. With HMRC ramping up its compliance activity, Tax enquiry insurance from Qdos will cover you against professional representation costs incurred, up to £50,000, to protect you if HMRC comes knocking.