Meg Saksida considers when you need to declare various types of additional income.
We all know employment income is taxable; but what if you earn money for babysitting the neighbour’s child? What about tips earned at work and winnings on the horses?
Some things are obviously taxable. But for certain types of income, the tax position is not so clear.
Selling single items on eBay or car boot sales auctions or online ‘want-ads’
The tax position will depend on the item you sold and how much you received for it as to whether it is chargeable to capital gains tax (CGT) or not. ‘Wasting chattels’ are exempt from CGT. A ‘chattel’ is an item which is tangible (i.e. you can touch it) and can be moved without destroying its surroundings.
If the original intention was that the chattel would not be useful for over 50 years, it will generally be a ‘wasting chattel’. Examples of wasting chattels are animals, vehicles (such as cars, boats and motorbikes), shotguns, and clocks. A ‘non-wasting chattel’ has an expected useful life of over 50 years, and if it was bought and sold for £6,000 or less, it too will also be exempt. In all other cases, any gain on the sale will be chargeable to CGT.
Casual work
For casual work such as babysitting, washing cars, gardening, or charging your friends and neighbours for using your tools or other items, the tax position will depend on how much money has been made for the services provided.
If the service was the only ‘self-employment’, the individual performed in the tax-year and the revenue was not more than £1,000, the individual can rely on the ‘trading allowance’. This gives theoretical expenses of up to £1,000 where an individual is ‘trading’, meaning that all income under £1,000 is deemed to revert to zero and no tax is due on it. Nor does it need to be reported. If income is above £1,000, a self-assessment tax return is required and all net income will need to be reported and taxed.
Renting out a property or a part of your home
If a property is rented (including such rentals as ‘Airbnb’) and the landlord is not in occupation the landlord will need to report the net income on their self-assessment return.
However, if the landlord is also living in the house, they may be able to use the rent-a-room scheme. This scheme allows the landlord the option to either use the actual expenses that were incurred in the tax year or a standard deduction of £7,500.
Usually, the rent-a-room scheme is better; firstly, because calculating how much of every household expense is allocated to one room is difficult (e.g. how much electricity, gas, council tax or water do you allocate to that room)? Secondly, usually the expenses from renting a room will not be more than £7,500, so being able to offset a standard amount is advantageous; thirdly, if the receipts are less than £7,500, the taxpayer does not need to inform HMRC, so the administrative burden is avoided.
Tips from customers
Tips at work are taxable, but whether the taxpayer needs to pay National Insurance contributions (NICs) will depend on how they are received.
If received in cash, there are no NICs. If received via a credit card payment and paid directly to the employee from the employer, NICs will be payable if the employer decides the percentage given to each employee.
Gambling winnings
Winnings such as from the National Lottery, on the horses, on ‘poker’ machines or in a casino are free from income tax and CGT.
Practical tip
Not all sundry additional income is tax-free. Check carefully, to avoid falling foul of HMRC’s self-assessment rules and regulations.
