Side Hustles for International Students: The UK £1,000 Tax Rule
Thousands of international students come to the United Kingdom armed to their teeth with side hustle ideas to beat the 20-hour work limitation. For years, students from third-world countries have used their side hustles to survive without the government's interference. However, things can get more challenging for anyone who earns at least £1,000 annually from these businesses.
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For instance, students who use Depop, Upwork, Airbnb, Etsy, Deliveroo, or Fiverr or rent their spare rooms must obey the new UK's crucial £1,000 tax rule. The new rules aim at people who fail to pay tax or declare their income to the government.
Once you exceed the £1,000 threshold, you must register as self-employed and file a tax return at the end of the year. In addition, digital platforms must report users' financial details directly to the taxman. If you fail to report bank account details and transactions made, you can face penalties or pay large fines.
Here’s what you need to think of?
From 1 January 2024, side hustle platforms, including Airbnb, Etsy, Deliveroo, Upwork, Fiverr, and Uber, must share user details, including bank account information, with HMRC.
What does this mean for you?
People who earn more than £1,000 per year from their side hustles must register for Self-assessment and accurately report their incomes. Failure to do this would result in hefty penalties and fines.
What is a side hustle?
A side hustle is an extra or additional source of income you earn beyond your primary job. It could come from renting spare rooms, selling online, or freelancing on platforms like Upwork or Fivver.
What is the trading allowance?
Employees in the United Kingdom pay national insurance and income tax, but the rules are different for side hustle businesses. Not all the money people make from their side businesses is taxable income. You are safe from this new tax rule if you don't exceed this £1,000 a year.
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Renting out a spare room
Do you have a spare room in your apartment? If you rent out this furnished room through the government’s Rent a Room scheme, the first £7,500 of rent each year is tax-free. Meanwhile, if you share the money with someone else, the amount is halved to
£3,750. However, if you earn less than the threshold, you are safe.
People earning more than this threshold must complete a self-assessment tax return to inform HMRC.
Tax-free allowance: £7,500
Tax payable: Earnings over £7,500, calculated on your income tax band.
A part-time job
People who work second or part-time jobs and receive money through PAYE don't have to declare their income. The taxman automatically combines their income and then adjusts their tax code accordingly.
Tax-free allowance: No tax-free allowance.
Tax payable: Extra income calculated based on the income tax band.
Selling secondhand items online
If you are into jobs that don’t generate tax bills, such businesses may not produce a significant income. Therefore, you may not make over the £1,000 annual tax-free trading allowance.
Tax-free allowance: £1,000 or £12,570 if you don’t have a main job.
Tax payable on Earnings over £1,000, providing you are above the personal allowance. The tax rate is subject to the income
tax band.
Starting an online business
People who purchase and sell stock online or make more than £1,000 through their side hustles online are considered traders. You must register that business as a company before 5 October, after the end of the tax year you started the company.
Meanwhile, if you earn more than £1,000 a year in revenue, you'll need to declare this along with your profits in January through self-assessment. Also, registered sole traders or businesses must declare their costs and show their profits. The profits will be liable for the 20% tax.
When you register a business, you enjoy tax benefits like “allowable expenses,”’ which is the money you spend that has returned to the business. You must declare revenue over £1,000 and profits in a self-assessment tax return by 31 January each year.
Tax-free allowance: £1,000
Tax payable: Earnings over £1,000, minus any allowable expenses, calculated based on the overall income tax band.
Renting out your driveway
You can earn extra cash renting your driveway, but the taxman cuts your rental income once you make more than £1,000 per tax year. You will receive “allowable expenses” but need receipts to prove such expenses.
Tax-free allowance: £1,000
Tax payable: Earnings over £1,000 minus allowable expenses based on tax band.
Note: International students can work a maximum of 20 hours a week during term time and work full-time during vacation periods
Advantages of a side hustle while studying
1. Selecting how you structure your work hours
2. Freedom to pick your projects
3. Building a professional network as a student
4. Opportunities to improve or learn new skills
5. Earning money doing something you enjoy
6. Applying the skills you learn in your degree
Challenges of a side hustle while studying
1. Inconsistent salary
2. Taking on too much work
3. Set up costs
4. Chasing invoices and waiting to get paid
How to Pick a Side Hustle
- How much do I need to make to be sustainable?
- Who needs the side hustle I'm offering?
- How do I deliver it to my target audience?
- What do I need to get started?
- Will I have recurring expenses?
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Types of side hustles
1. Photographer, if you're handy with a camera
2. Start making and selling goods if you've got a crafty skill
3. Write content
4. Offer graphic design services
5. Tutor secondary and college students
6. Offer your babysitting services
7. Teach a language or work as a translator
8. Get your qualification and start as a personal trainer
9. Run social media channels for businesses
10. Design and maintain websites
11. Participate in research or focus groups
12. Flip items from local garages or car boot sales
13. Join a ridesharing app like Uber
14. Earn money as a food delivery person for companies like Deliveroo
Advice for freelancers
1. Register as self-employed or 'sole trader' with HMRC.
2. Keep a detailed log of all your earnings to make your tax return easier.
3. Learn how to file your self-employed tax return.
4. Have a signed or confirmed work agreement with each client
What happens if a student works more than 20 hours in the UK?
An international student who works more than 20 hours in one week will be breaching his visa, which could lead to serious problems with the Home Office.
What is the best job for students in the UK?
a. Social Care
b. Accountancy
c. Construction
d. Transport & Logistics
e. Health & Medicine Sector
f. Customer Service
g. Education
h. Marketing
International students on a Tier-4 Student Visa are not required to run businesses or be self-employed while studying.
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