The last thing most people want to hear of is a new tax to coincide with the new year. The latest controversy is the so-called “side hustle tax” – spurred by news that HMRC has forced digital platforms like Vinted, Airbnb and eBay to share information on users’ earnings.
This is not really a new tax, fortunately. Rather, this is about income tax being collected on earnings that might previously have flown beneath the radar.
For those shifting a few old belongings or an unwanted Christmas gift on Facebook Marketplace, there is a £1,000 allowance before tax kicks in, but the new policy has sparked alarm among many people. Notably, it seems a lot of the confusion and worry stems from an outright lack of awareness that a “side hustle” might potentially be taxable at all.
Therein lies the truly interesting story. The changes that sparked this panic are symptoms of a digitally-enabled boom in innovative, small business entrepreneurship in recent years.
The new services and marketplaces making this possible are ubiquitous, with millions buying, selling and sharing everything from holiday accommodation, handicrafts, recycled building materials and new artworks, to life coaching, advertising and make-up tutorials.
They are facilitating amazing things, lowering the barriers to entry to business for people who would previously have needed to pay for all sorts of infrastructure, and unleashing innovation of a variety and scale that has never before been seen.
Customers benefit from greater choice and lower prices, and the market creates a more efficient circular economy, reusing things that might previously have gone to landfill.
At the same time, this trend helps vendors defend and advance their interests. In tough times, a side hustle offers a way to top up their earnings and shield against inflation. And it is now easier than ever to develop a new career or business without having to take the plunge of abandoning your existing job.
Both security and freedom are advanced when people can test out new ideas at lower cost and start to make their dreams a reality before taking a big risk.
For all these reasons, that revolution has happened fast and almost everywhere. While the UK government is taking flak for these regulatory changes, they stem from the OECD’s efforts to develop a standardised treatment of such activities across dozens of market economies, all of which are seeing similar developments.
The speed of this change has two implications. First, these new markets involve a large number of people – nobody quite knows how many in the UK have a “side hustle” but the estimates reach into millions, particularly among the young.
Second, it’s happened so fast that our culture, politics and even the taxman are lagging behind. The twin facts of this story – that people think of what they’re doing only as a “side hustle”, and that some of them are shocked to learn they might be subject to taxation on their earnings – reveal a shift so rapid that we’ve yet to see its full consequences.
In particular, there has been a massive expansion in the proportion of the population who are now businesspeople in their own right.
This is a massive deal. Every Instagram influencer, every Depop seller, every Etsy crafter, every Substack blogger, and every OnlyFans creator is running a business. Even many of those people themselves do not think of it that way yet, but it’s true nonetheless.
The nature of business has changed, and inevitably the politics of business will change as a result. The “side hustle tax” is the first snowflake in that avalanche.
Most immediately, it means that Rishi Sunak’s government has started an election year by signalling to quite a lot of entrepreneurial people that it wants a slice from their handy extra earnings. There will be more missteps and clashes as the UK and other governments play catchup to encompass this new sector of the economy within existing tax and regulatory rules.
Making new policy will also become harder, because there is a widening gap between the Westminster and Whitehall concept of business and the reality of it. It was already the case that the easiest business engagement – picking up the phone to a small number of gigantic companies, or to their behemoth lobbying organisation, the CBI – meant neglecting the actual bulk of the economy, which is made up of small businesses.
Now that mismatch has become even more stark, as these side hustle micro-businesses, multi-business portfolio careers, hobby businesses and pop-up businesses become numerous and increasingly valuable. How do you reach and consult businesspeople who don’t yet think of themselves by that term? For politicians and public officials who don’t do this stuff themselves, and who are used to handy organisations representing each industry, where do they even begin?
That’s only the start. Once the millions with a side hustle become more aware of their own business status – perhaps through further shocks like this regulatory change – and begin to defend their interests as such, that really will change the game.
For free marketeers, this is a challenging new opportunity to engage with a whole new generation for whom entrepreneurship is so common that they don’t even notice they’re doing it, but who don’t want to be old-fashioned corporations. For the left, the reliable old language dividing workers and businesses is at risk of dissolving. And while both sides expend a great deal of energy earnestly talking about managing the pace of social and economic change driven by technology, the world has already shifted under their feet without them noticing.
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