Edward, a 69-year-old retired tax inspector from Dudley, finds himself in a curious position.
He is among scores of people who got in touch with the Guardian to share concerns about a government crackdown on undeclared earnings from selling goods or services online, so-called side-hustles.
Since 1 January, HM Revenue and Customs has required digital platforms, such as Airbnb, eBay and Vinted, to collect information on how much money their users make.
“I worked for HMRC for over 30 years, and was trained in identifying what constitutes a trade,” Edward says. “Yet, I’m not clear what the implications of this new data handover are for personal tax liabilities.”
While what has been called a “side-hustle tax” is not a new levy, this does mean people who have never declared profits from these sites could soon be on HMRC’s radar and face the prospect of large bills, or even fines, if they do not adhere to the law.
Edward began selling personal belongings last year, mostly CDs and books on eBay. “Side-hustle has a dodgy ring to it, I’m just decluttering. In about 10 months I have ‘made’ about £2,500, which is above HMRC’s £1,000 threshold before a trader needs to make a tax return.
“I don’t think I will have to make one, though, as I’m pretty confident I’m not trading. If a person has bought an item for their personal use and enjoyment, and then sells it on eventually, they shouldn’t need to pay tax.
“Even if I were deemed to be trading, the amount liable to tax is not the amount received, but the profit, taking account of the original purchase price, cost of packaging and postage. Given that some of the items are over 30 years old it’s hard to be specific on what I paid for them, but it’s clear to me that the majority of items I’m selling go for no more than what I paid. But I don’t know what HMRC would make of this.”
HMRC refers people who are concerned about whether they need to declare additional income to an online tool, but cannot comment on specific cases.
Edward says the data handover will, for the time being, not deter him. “I’ll carry on with my eBay activities, but will keep an open mind about whether I need to make a tax return. I’m not planning to make one for 31 January.”
HMRC says occasional sellers of goods on a digital platform, who make fewer than 30 transactions and sell items for less than a total of €2,000 or £1,700 that year, will not be included in the information it receives.
A spokesperson added that not every person exceeding these thresholds would automatically be considered a professional trader and asked to fill in a tax return, and that the additional information would merely allow tax officials to form a more holistic picture of a person’s activities.
Despite such assurances, concerns about technicalities of the new data sharing system appear to be shared by many.
Connor, a software developer from Nottingham, has been registered as a sole trader for a few years as he sells model kits, mostly for war games.
“Professionally, I mostly do private sales through professional industry groups or recommendations by previous clients, or through my own online shop as it’s cheaper than eBay, where you have to pay various fees,” he says. “But I use eBay for personal sales and purchases – I irregularly sell some collectibles, to free up some cash. Last year, I made personal sales of around £700, but the year before it was £2,500.”
Connor believes this private sales activity should not be liable for capital gains taxes, as the collectibles he sells are rarely sold for more than he purchased them for, and never over the HMRC’s appreciation allowances.
“But I’m concerned that the system won’t accurately [categorise activity] and will put undue pressure on people such as myself, who have both personal and professional incomes.
“How is the system going to recognise, automatically, the difference between someone who is actively trading and someone just selling personal stuff? Are we going to have to keep receipts for everything we’ve bought [to prove the cost of a personal item]?”
Connor thinks he will probably shift away from eBay as a result of the new transparency rules. “I’ll do more private sales, which will mean fewer headaches. I don’t trust the government to get this right.”
While some people who got in touch were surprised to hear that some online traders were apparently not declaring their income from platforms such as Airbnb or Amazon, others were shocked to learn that their extra income would now be reported to the tax authority.
Vanessa, a financial analyst from London,has been renting her clothes on the platforms By Rotation and HURR for some extra income.
“Every time I buy something I end up making money on the purchase,” she said. “I use this extra money to pay for IVF and expenses.
“I think [the new data sharing] is really unfair. I pay a lot of tax on my employment income, and I’m not making a huge amount of money [on the side]. I suspect most people impacted are just regular people trying to make a few extra pounds to cover expenses in a cost of living crisis.
“Why not focus on tax avoidance by multinationals and high net-worth individuals, rather than targeting ordinary people trying to get by?”
John, 68, from Bedfordshire, disagrees with this view. “I have no objections to paying income tax on side trades, it’s what a healthy society depends on,” he said. “But I do worry this could, potentially, catch out a lot of people who should not be paying extra tax.”
He said he had been selling a large collection of photographs he and two friends took over many years on eBay for a decade, and was already submitting a tax return for other reasons.
John fears his activity, despite an average sale price of only £2 a picture and overall very modest returns, could be assessed as a trade in future, as he sells about 30 photos a week and therefore vastly exceeds the HMRC threshold of 30 personal sales a year.
“I never considered there was a tax liability on this, as the three of us split the proceeds, which never exceed £1,000 each annually. Last year, I sold about £2,000-worth of pictures. However, this all passes through my bank account, so I would appear to be making gains in excess of the £1,000 allowance.”
John expects the new data-sharing rules to affect his online activity.
“I’ll probably sell much less. I’m also very concerned about the continued creep of government data-sharing – eBay will now want my national insurance number. I think HMRC is using a sledgehammer to crack a nut. Though I understand that HMRC wishes to tackle the ‘black economy’, this feels like a huge overreach. Mass surveillance can never be the answer.”
An HMRC spokesperson said: “For people selling personal possessions online, absolutely nothing has changed. The reason we’re asking digital platforms to share information with us is to ensure businesses operating via these platforms pay the correct amount of tax, and do not have an unfair tax advantage over high street and other traditional businesses.”
