Selling online is changing – are you falling into the ‘tax trap?’
Selling online is changing – are you falling into the ‘tax trap?’
Digital platforms, such as eBay, Vinted and Airbnb, to name a few, will have to report ‘seller data’ to HMRC from January 2024 giving HMRC access to this information directly for the first time.
Are you one of the millions of UK individuals selling second hand clothes, for instance on digital platforms? Whether you’re someone who just likes to declutter or have a ‘side hustle’ on platforms such as Vinted, eBay or Etsy, HMRC will be keen to find out more about potential untaxed income.
Research shows for instance that Vinted has over 8m registered sellers in the UK with some sellers having turned selling second hand clothing into a full-time job, but now thanks to new information powers HMRC will start to know about that income.
From 1 January 2024, digital platforms will have to start collecting seller data and pass that over to HMRC to match against taxpayers’ records to make sure people report the right information on their tax returns.
The new reporting measures will also impact those renting out properties on Airbnb (and other platforms) or people selling their services online, and these platforms have been warned to brace themselves against landing in hot water with HMRC.
The first reporting deadline for all online platforms will be 31 January 2025 and in order to meet these requirements the online platforms will need to implement new ways of collecting information about the sellers, so that HMRC can match and verify the details alongside taxpayers’ records to make sure individuals are correctly reporting their income on their tax returns.
HMRC will be charging hefty fines and penalties to those failing to submit reports or submitting ‘inaccurate, incomplete, unverified sellers’ records’ so the platforms will be incentivised to ensure they meet their reporting obligations.
If you are someone who occasionally sells through these platforms and receives no more than £1,700 for fewer than 30 sales in a reporting period, your information is not required to be provided to HMRC. However, that doesn’t mean you do not have any tax reporting obligations.
Depending on whether you have a profit-seeking motive (for example, some online platform users buy premium items from outlets and then sell them at a profit online), the number of transactions you make, or the nature of the assets you sell, your side hustle could be seen as trading.
In this case a self-assessment tax return will need to be filed with HMRC and income tax and National Insurance contributions paid accordingly. If you make sales of £1,000 or more in a year, you will need to consider whether a tax return is required.
The good news is the information collected by these various platforms must be shared with HMRC as well as with sellers. This should help taxpayers get their affairs right. It could however bring a whole new raft of unaware individuals within HMRC’s reach and could make some taxpayers think twice about their wardrobe spring clean.
The deadline for the digital platforms to start collecting information is now (January 2024).
Kennedys Accounting are specialist’s in working with resellers, so if you are unsure how this may affect you – please get in touch.