Anyone selling used clothes on Vinted, renting out their home on Airbnb, or getting rid of old camera equipment on eBay is going to come under fresh scrutiny from the taxman, following a crackdown on income earned from online trading.
From 1 January, HM Revenue & Customs will require digital platforms to collect information on how much their users make.
Countless sellers who have never declared their income 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.
Dawn Register, head of tax dispute resolution at accountancy firm BDO, says HMRC could already request the information from UK-based digital platforms on an ad hoc basis, “but the new rules, coming into force from January 2024, mean that this information will start to flow automatically – and globally”.
Websites in any countries that have signed up to rules set out by the Organisation for Economic Co-operation and Development (OECD), will collect information on UK-resident sellers and share that with HMRC.
Register says this means that if you are letting a holiday home abroad through a non-UK website, the data could make its way back to the authorities here.
What is changing?
Websites will have to collect data about sellers. For individuals, this will be their name, address, date of birth and national insurance number, plus what they have earned and paid in fees on the platform. If a property is being let, they will need its address. This information will not have to be shared with HMRC until the end of January 2025.
Register says other data, such as bank account details, may also be collected and ultimately be shared with tax authorities.
Smaller sites will also be affected. “This will include those that allow you to sell goods and services, including those that arrange taxi, private hire or food delivery,” says Register. “It will also include those that facilitate short-term property rentals, as well as contract-work sites that help freelancers find one-off work assignments.”
The sharing will allow HMRC to connect data from the websites to tax returns made by people – or to cases where returns have not been made, says Robert Salter from accountants Blick Rothenburg.
Christine Cairns, a personal tax partner for PwC, says that platforms should provide sellers with a copy of what has been submitted to HMRC to help them with their tax returns.
How will this affect you?
For people who are already declaring their earnings and paying the tax they owe on it, little will change. But there is the potential that the people who do not pay what they owe could get demands.
“The information provided to HMRC should make it easier to detect those who are either mistakenly not declaring what they should, or those seeking to evade tax,” says Register. “It will therefore be even more important for taxpayers to ensure they are accurately reporting their income from all sources.”
Everyone has a trading allowance each tax year, which means they can earn up to £1,000 without paying tax. “Those involved in ‘hobby selling’ – for example, they may make a few sales and genuinely be hoping to make a profit, but on a small scale, may have no real issues.
“This is on the basis that those involved … would be eligible for the trading allowance,” says Salter.
“HMRC would not typically expect people in that situation to even complete an annual tax return, though if a tax return is issued to them, taxpayers should always complete and submit it, as automatic penalties can arise if the filing obligation is not met.”
The £1,000 threshold – about £83 a month – is intentionally set low to include just the most occasional sellers, says Cairns.
If you earn more than that, you will be expected to fill out a tax return, even if there is no tax due.
On top of the trading allowance you can also use the rent-a-room scheme if you are using Airbnb to offer accommodation in a room within your own house. This lets you earn up to £7,500 a year tax-free.
If people have been trading at above £1,000, but not made a tax return, they may find themselves getting ‘nudge’ letters from HMRC to sort their affairs, or asked to make a voluntary disclosure about undeclared income, says Salter.
“It is quite possible that some of the more egregious cases could result in HMRC audits and even criminal prosecutions.”
HMRC says people selling off clothes or items that they originally bought at a higher price will not be liable for tax on that income.
Vinted, the resale site which has boomed in recent years, says it is working to make the new rules easy and convenient for sellers.
“We are currently finalising some tools, and we’ll be contacting eligible sellers through next year with information on the steps they need to take, and why,” it says.
Sellers on eBay will need to supply their national insurance number, and the site says it will launch information pages with the details it will be collecting. Airbnb says it has been sharing earnings information from hosts with HMRC for a number of years and it has tax information on its site. Gumtree, the small ads site, says it does not fall under the scope of the new rules as it does not facilitate payments.
Why is this happening?
Register says the “gig economy” has changed much faster than tax authorities expected, but “they are now catching up fast and making life much harder for those seeking to hide income and gains”.
Three years ago, the OECD published rules on how digital platforms should report people selling goods and services.
This followed changes in the world’s economy, with more people working from home through freelancing websites, and also selling secondhand goods, such as clothes, says Miruna Constantin, tax manager at accountants RSM UK.
“These websites connect skilled freelancers from around the world with clients, and it would be safe to assume that, without any failsafe measures in place, it is fairly easy for governments to miss out on the tax due on the income received,” she says. “Besides freelancers, there has also been a surge in sales of secondhand clothes and other goods, maybe because people are struggling to make ends meet, or perhaps because they decide to shop more sustainably.”
Salter says the UK government believes many people and businesses are trading through these sites and not reporting profits. “Without the new regulations, HMRC didn’t really have the power – especially with digital platforms based overseas – to demand details of those individuals who were trading through the relevant platforms,” he says. “One could argue that it was a recipe for the black economy and tax evasion.”
