UK sellers on platforms like Etsy, eBay, and Vinted are under heightened scrutiny as HMRC enforces stricter tax regulations. With a new rule requiring online marketplaces to report sellers earning over £1,700 annually, many are racing to meet self-assessment obligations and brace for potential tax bills.
This month, a new deadline requiring online marketplaces like Vinted and eBay to share sellers’ profits with HMRC takes effect, potentially leaving more users facing unexpected tax bills.
HMRC Intensifies Scrutiny Of Online Marketplaces
Since January 2024, online platforms like eBay, Vinted, and Etsy have been legally obligated to share data with the tax authority (HMRC) on users who earn over £1,700 annually or complete more than 30 transactions.
These new rules are designed to uncover online sellers who have evaded taxes by failing to declare their trading income. This crackdown comes as a growing number of workers, particularly among Gen Z, are turning to side hustles to supplement their income.
Online platforms have until January 2025 to share relevant user data, including personal details and income information, with HMRC. These platforms must also provide this information directly to the affected sellers.
According to HMRC, this will help to ‘detect any deliberate non-compliance, ensuring a level playing field for all taxpayers.’ The new rules have confused many online sellers about whether they owe taxes on their sales income.
New Rules For Online Sellers: What You Need to Know
UK government urges individuals to review their income sources and ensure they’ve accurately reported all income to HMRC. This includes income beyond regular employment and any income not already accounted for in your self-assessment if you’re self-employed.
This may include income from various sources such as selling goods, casual work like gardening, food delivery, etc, income earned by renting out equipment or tools to others, property rental and income generated from creating and monetizing online content.
‘HMRC has striven to make clear that it is not interested in people selling unwanted Christmas gifts but in professional online traders who have not reported their profits,’ John Hood of accountancy firm Moore Kingston Smith said.
‘There are some basic tests to check if this is a hobby or a trade with the most important one being whether the person is selling goods or services with a view to making a profit. People should remember that it is not too late to register for self-assessment and complete a tax return by the end of January.’
Are You Affected By The New HMRC Rules?
According to Xero, failing to pay income tax on income from a side hustle can have serious consequences. HMRC may impose fines on individuals who neglect to pay taxes on their side hustle income. Late tax payments accrue interest, meaning the longer the payment is delayed, the higher the total amount owed will become.
Vinted, a platform for buying and selling secondhand clothing, has stated that its users generally do not need to pay tax on their sales. This is because they often sell items for less than they originally paid for them.
You may be liable for Capital Gains Tax (CGT) if you sell or give away a personal possession for more than £6,000. Moreover, traders who sell for a profit and have an annual turnover exceeding £1,000 may owe tax and must file a self-assessment tax return.
‘I think the key message for taxpayers is not to panic – selling some unwanted Christmas gifts or clothes the kids have grown out of is unlikely to mean they have tax to pay, even if they receive information from the online marketplace in January,’ said Emma Rawson, of the trade body the Association of Taxation Technicians.
‘However, taxpayers who are making or buying things with a view to sell at a profit and make over £1,000 of income (before expenses) each tax year need to carefully consider whether they could have tax to pay. If that is the case, they should contact HMRC themselves, and not wait for them to catch up to them,’ she added.
‘For people selling personal possessions online absolutely nothing has changed,’ a spokesman for HMRC explained. ‘If you aren’t trading and just occasionally sell unwanted items online there is no tax due.’