From 1st January 2024, a change in the information HMRC can collect on sellers using eBay, Vinted and other online marketplaces came into force. The big question is, what does it potentially mean for you?
In these belt-tightening economic times, many individuals are selling clothes online or perhaps letting out their garage for storage to generate some additional income. The question that arises, is of course, do you need to tell HMRC?
Side-Hustle Tax: What has changed?
From the start of this year there are new rules that the UK has signed up to via the international body, the Organisation for Economic Cooperation and Development (OECD), as part of a global effort to clamp down on tax evasion; with information being shared between countries that have signed up to the OECD tax rules.
The new rules require digital platforms to report any income that sellers are getting through their site, other than one-off modest value sales. It will apply to sales of goods such as second-hand clothes or goods that have been handcrafted. In addition, it will apply to services including taxi hire, food delivery, freelance work and short-term accommodation lets or even renting out your driveway for parking.
HMRC says the new rules will help it “bear down on tax evasion”, as sellers on digital platforms would now be treated more like traditional businesses. The online platforms will first have to report the information at end of January 2025 and will have to include information such as the tax ID, bank account details, and the value and volume of transactions for sellers whose activity is of significant enough size.
Side-Hustle Tax: Are there any allowances?
Under the new rules published by the OECD, firms will not be asked to share data about sellers who make fewer than 30 transactions or whose sales are less than €2,000 (£1,735) a year. Also, if your sales are small or occasional, HMRC already give a £1,000 tax-free allowance for trading income, such as if you offer tutoring or gardening services, or if you are selling second-hand items online.
A separate and additional allowance applies to income derived from monetising your property in some way or other, such as renting out your garden or especially your driveway, which many people who live close to major sports stadia, often do.
Anyone trading above the allowance must register with HMRC and complete a tax return. But remember, for those individuals not obliged to register for tax, you should keep records just in case HMRC asks for them.
Side-Hustle Tax: What do the online platforms say?
Adam Jay, chief executive of the second-hand marketplace platform Vinted, said that he did not believe the new rules would affect many of the site’s sellers. “It’s actually quite a small proportion of users of our platform who will trigger this threshold where we will need to provide information,” he said.
“It’s only those people who are making a profit from selling second-hand items that might be eligible for tax and then it’s about their own personal tax situation what tax would ultimately be due to HMRC,” he said. “We’ll be actively reaching out to those sellers explaining what the new requirements are and why they exist.”
Side-Hustle Tax: Should you be worried about a one-off sale?
No, if it’s clearly a sale of previously privately owned items, such as some dresses that no longer fit you, as in the vast majority of sales of clearly second-hand items, you will not be making a profit. The important thing to remember is to retain as much bank, purchase receipts and the like, should HMRC get in touch.
Emma Rawson, of the Association of Taxation Technicians, said that the new rules could still potentially put off some people who might be wary of incurring taxes by clearing out their loft and selling things online, or making money from a craft hobby. The key thing to consider, she said, was whether or not what you were selling amounted to a trade, this could be an issue if you’re proactively buying goods to sell on.
If you think that you may have breached the £1,000 trading allowance, commonsense dictates that It is probably a good idea to contact the tax authorities. It would be foolish to wait for that letter from HMRC to drop through your letter box. It is always better if you think there might be the possibility of some tax for you to pay, to declare that upfront as there may be penalties involved if you ignore the situation.
Tax Accountant’s view
This is clearly an attempt by various tax authorities in multiple countries to go for the low-hanging fruit rather than going for the bigger players. In most other areas of tax, the threshold set for a potentially fraudulent or illegal transaction is €10,000 (£8,675). Nevertheless, unfair or not, the new rules are now in operation, so be careful out there!