Online sales platforms begin to report seller income to HMRC!
- TBA
- Jul 4, 2024
- 5 min read
If you often or are planning to sell goods or services through online marketplaces such as eBay, Etsy, or Vinted, rent out your property on Airbnb, or make extra money through platforms like Deliveroo or Uber, then you will want to pay attention!
From the 1st January 2024, HMRC implemented new rules requiring online marketplaces to collect all seller information and report seller income. This means you might no longer be able to ‘secretly’ hide any additional income.
1. New rules for information collection
HMRC defines an ‘online marketplace’ as any digital platform that facilitates the sale of goods and services by individuals and/or businesses to customers, such as sales websites or mobile apps.
From the 1st January 2024, all online marketplaces are responsible for collecting and reporting seller information and income to the tax authority.
Previously, HMRC had the right to obtain seller income information from various UK platforms, but automatic disclosure was not mandatory.
The implementation of the new rule will help taxpayers correctly pay taxes in a timely manner and combat tax evasion.
This regulation allows online platforms to proactively cooperate, helping the tax authority more efficiently obtain information. Notably, this rule will also apply to other jurisdictions who have signed reciprocal agreements with the UK, allowing HMRC to obtain information from platforms outside the UK.
2. Who is affected?
The new rule will affect digital platforms that facilitate the provision of services or sale of goods to UK or other taxpayers within the UK. It will also affect UK taxpayers, including individuals and companies, providing services or selling goods on digital platforms.
These digital platforms include any apps and websites that facilitate the provision of goods and services, such as ride-hailing services, food delivery, freelance work, and short-term accommodation rentals.
However, the new measure does not apply to cashback sites like Quidco and Topcashback, as cashback is not taxable.
If you sell goods or services on these platforms, you will receive a copy of this information (the report collected by the online platform). You can use this information to check your income and expenses, which might help determine whether you need to pay taxes on any profits.
If you only sell goods online, these online marketplaces will only automatically provide data to the tax authority if you sell 30 or more items a year or your total income exceeds £1,700. Therefore, if your sales are well below this amount, there should be no issue. However, note that if your sales income exceeds £1,000, you might still need to pay taxes.
3. When do you need to start paying taxes on goods or services sold online?
HMRC states that if your sales activity is defined as ‘trading’ or generates capital gains, you need to pay taxes.
If you are just selling used items from your home, such as items from your attic or garage, you do not need to pay taxes.
As mentioned in our previous article, if your total income from trading or providing services online in any tax year is less than £1,000 (before deducting expenses), you do not need to notify HMRC or pay any taxes on the profit.
To help understand these exceptions better, here are some examples:
Used Items
Luis is preparing to move house and has been clearing out his attic, after which he decides to sell some unwanted items online. For Luis, this is a one-off activity and the selling price is less than or equal to the original purchase price.
As these are personal items, the selling is not defined as a ‘taxable trade’ and therefore not liable for tax.
Reselling Clothes
Joanne wants to buy items from car boot sales and charity shops with the intention of re-selling them online at a higher price than she originally paid. She aims to generate a profit (after deducting costs and postage).
As this is a trading activity, the profits will be subject to tax.
Selling Handmade Cards
Gina works full-time but makes greeting cards for friends and family in her spare time. She then decides to start selling the cards online and soon begins to make a profit. As her business continues to grow, she expands her product range further.
As Gina’s sales are for profit, and the sales are organised in a business-like manner, it should be considered a trading activity and therefore subject to tax.
Car Model Collector
David likes collecting car models, and sometimes buys and sells models and looks for swaps to complete sets, knowing that a complete set is more valuable. When he completes a set, he sells it for a significant profit.
Since David buys and sells models for profit, he is likely engaged in a trading activity.
Importing and Selling Cameras
Xavier imports cameras and accessories from abroad and sells them online for profit. As he aims to make a profit from his sales, and the sales are regular, it is likely to constitute a trading activity.
Online Tutor
Emma is a student who works part-time in a store, and also earns money by teaching a foreign language online. She has regular students and offers discounts. Therefore, her activities are considered trading, and any profits she makes need to be taxed.
4. Some advice from TB Accountants
Note that the new rule implemented in January 2024 is not a new tax—it simply allows the UK tax authority to have better oversight of your income.
The regulations for taxing income from digital platforms have not changed.
If you previously did not need to pay tax on your online income and continue to use these platforms in the same way, you will not need to pay taxes on this income now.
However, the change means that HMRC can now more easily see your income from digital platforms, so now is a good time to check if you owe taxes or if your future income might incur taxes.
The new rules also allow for information sharing with authorities in other tax jurisdictions (and vice versa). Therefore, if you live in the UK but earn money on a platform in another country, that country’s tax authority can still inform HMRC. It is unclear which countries have signed the new rule, but most EU member states are expected to join.
TB Accountants advises you to carefully keep track of your accounts and reports starting this year, even if it’s only very small amounts of income. If you have never reported income through self-assessment before, we recommend that you consult a tax expert to learn how to register and file your taxes correctly.