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Paying VAT on your side hustle income

Whilst the COVID pandemic caused major operational issues for many businesses, its effect on the business world led to many furloughed employees looking to ‘side hustles’ as a way to generate extra income for themselves and their families.

What is a side hustle?

The term side hustle is relatively new and is defined by the Cambridge Dictionary as a piece of work or a job that you get paid for doing in addition to your main job. For many, this extra income has helped alleviate financial strain throughout the pandemic. For others, it was the start of a fledgling business, often being run on an e-commerce platform such as Amazon or Etsy.

When would I need to pay VAT on my side hustle?

You’ll only really be required to account for VAT on your sales when you reach the compulsory VAT registration threshold of £85,000. Some businesses choose to register for VAT at lower levels of turnover as it sets them up for any period of growth in the future.

Although not always the case, e-commerce sales will generally be between a business and an individual consumer. One thing we’ve always recommended where this is true is that the business sets their pricing structure up from the beginning to account for any monies they’ll lose in VAT when they do eventually reach the VAT threshold.

As a worked example, if a business sells a product for £30 and it is VAT registered, then it will have sales of £25 and will account for £5 of sales VAT each time it makes a sale. The business effectively collects the £5 of VAT on behalf of the consumer and pays it over to HMRC, usually at the end of each quarter.

The VAT rules on sales made in the UK are relatively straightforward. Where things become a little more complicated are when sales are exported from the UK to other countries. Post-Brexit rules mean that you are able to zero-rate (ie charge no VAT) most sales, as long as you keep evidence that the goods were actually exported from UK shores.

Get side hustle accounting advice you can trust

If you’re thinking of selling on Amazon or any of the other e-commerce platforms, please do not hesitate to get in touch and we’ll be happy to help you get set up in the right manner. Feel free to contact our friendly team on 01704 546000.

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