HMRC is targeting online sellers – what do you need to know?

As mentioned in our previous blog – https://kennedysaccounting.uk/selling-online-is-changing-are-you-falling-into-the-tax-trap-insights/ in January 2024, it seems that HMRC have already started compliance checks on the highest reported earners.

Following the UK’s agreement to the Organisation for Economic Cooperation and Development’s (OECD) global data sharing which is working to tackle worldwide tax evasion, HMRC will now be able to access seller information on online platforms.

Platforms such as Etsy, Vinted, eBay as well as media platforms such as Instagram and Only Fans, are required to collect sales and income information from their sellers and influencers to share with HMRC.

Other platforms which provide services such as Uber, Deliveroo and Airbnb, will also have to share their data on any services which receive payment.

Although these platforms will not report their first full year of data until January 2025, HMRC has already begun compliance checks on the highest reported earners in previous years.

But there are a few things that ‘sellers’ using these platforms should know. To start with not all sellers will automatically need to file a self-assessment tax return, as reported by the media. Despite the media attention, it does not apply to everyone. Not all sellers have to file a tax return, however, it is important to stay on top of your sales, expenses, and side hustles.

As this new initiative is a global data share initiative, HMRC will be sharing their information with other tax authorities who have also signed up to the agreement, and vice-versa.

For example, if you live in the UK and your Only Fans account is earning you income in the US, an exchange of data on your income can be made between the US Internal Revenue Service (IRS) and HMRC. This example shows that when reporting your tax on your self-assessment tax return, particularly if you are earning in different currencies – the figures will need to be converted to sterling and put onto your return.

‘Influencers’ should be made aware that if they are a sole trader they will need to be VAT registered if the value of their sales take them over the VAT threshold. Platforms are not responsible for reporting VAT liabilities and the value of ‘gifts’ received from brands or followers can be included in the VAT threshold calculation.

Many influencers are not aware that if gifts are given for the purposes of promotion, the value of the gifts may be included in the VAT registration threshold calculation, therefore making them liable to be VAT registered and subject to VAT compliance checks.

This therefore means that the businesses ‘gifting the product’ are also liable for reporting the VAT on the gifts they supply, leading to them also likely to receive a VAT assessment.

So, who should file a self-assessment tax return?

The platforms will only send information to HMRC, if you fall under one of two categories:

you’re selling 30 or more items a year; or
your earnings exceed the taxable income threshold of £1,000.

If either of these apply and you are trading, not just selling your pre-loved clothes, a tax return will need to be filed.

If having read this you know a return hasn’t been filed for previous years which is now applicable, you should disclose to HMRC as soon as possible.

HMRC states that the onus is upon the taxpayer who ought to have known to report this income previously, and therefore on this basis, HMRC has still been imposing penalties on those who make a disclosure.

There are also other areas to consider, for example if you are selling a high value or luxury item on platforms such as eBay or Amazon, you may have to report this to HMRC as a capital gain rather than income tax, if it exceeds the threshold.

Airbnb and rent-a-room relief is also a grey area. You can only claim this relief if you meet certain conditions, the first being rental income of £7,500 (halved for joint owners) and critically that the property is your main or only residence.

Also in the Spring Budget 2024, it was announced that the furnished holiday lettings (FHL) taxes will change. This will aim to remove the tax advantage from those who let furnished properties for a short term. https://kennedysaccounting.uk/furnished-holiday-lets-changes-are-coming-insights/

If you are required to submit a tax return for your side hustle income, you are entitled to claim a deduction for relevant business expenses.

If you are likely to be affected by these changes and require help to complete your tax filings, get in touch with us today – either through our website enquiry form or by giving us a telephone call and one of our team will be happy to assist. It is crucial that you get the tax right and using a professional who will be able to advise on expenses, potential tax reliefs, and to guide you through the process will be worth the cost!