Selling online and paying taxes – new digital platform reporting rules

Why those selling goods and services online won’t be subject to a new tax, despite some information in the media over the past few days suggesting otherwise.

HMRC’s guidance has been updated with information regarding new digital platform reporting rules from 1 January 2024, and with additional examples of when someone may need to pay tax when selling goods or services via an online marketplace.

From 1 January 2024, new rules apply which require UK-based online platforms, e.g. a website or mobile phone app that handles and enables the sale of goods and services from individuals and/or businesses to customers, such as Ebay, Vinted, Uber and Deliveroo, to collect information about most people who make money through their platforms and then, on or before 31 January (for the preceding calendar year), to send this information to both HMRC and the individual themselves.

HMRC has had the power to ask platforms for information for a while now. This change means that UK based platforms will now have to report to HMRC every year, without being asked. These rules are part of a global initiative from the OECD (Organization for Economic Co-operation and Development). HMRC won’t just collect and use data from UK platforms, but will also receive data from overseas platforms. The following transactions are captured:

  • Category A – those to do with property rental, vehicle rental or a personal service;
  • Category B – those to do with the sale of goods – although not if the individual occasionally sells goods for small amounts. (This is defined as less than 30 transactions during the calendar year for which the total amount made must not exceed 2000 Euros – both tests must be met for this exclusion to apply.)

Category A captures things like taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation through online platforms. Category B captures people who buy or make purposefully to sell; but not those who sell a few personal belongings every now and again, for example to declutter.

Therefore, people who make money via many different platforms, including the big ones like Uber, Deliveroo, Just Eat, Airbnb, TaskRabbit, Etsy and Ebay may all potentially be affected.  

Information shared with HMRC will include identifying information (name, address, date of birth, etc.) for sellers but also how much they’ve earned and bank account numbers / sort codes. For those letting property, details of the property will be included. This will help HMRC, and other tax authorities, match up information about taxpayers.

Anyone who sells goods or services on these platforms will get a copy of this information. They can use this information to check the amount of income and expenses incurred through these platforms, which may be helpful in determining whether tax is due on any profits.

However, these new rules do not create any new tax obligations for individuals and the existing rules about what platform income needs to be declared and who needs to register for a self-assessment tax return have not changed.

In particular, people selling unwanted personal items such as their children’s old clothes or toys are not likely to be trading. Therefore, even if it is a significant amount, any money they make is generally not taxable.

In order to pay tax on the goods or services sold online, the seller either has to be trading or making a capital gain. HMRC’s guidance confirms that, if the individual is just selling some unwanted items that have been laying around their home, such as the contents of a loft or garage, it is unlikely that they will have to pay tax.

If someone buys goods for resale, or makes goods with the intention of selling them for a profit, then they are likely to be trading and will have to pay tax on their profits. However, if their total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, they would not be required to inform HMRC nor pay any tax on the profits (this is due to the Trading and Miscellaneous Income Allowance).

HMRC’s examples, while not exhaustive, cover a range of common scenarios of selling goods online, and illustrate where tax might need to be paid on any profits made.

The Low Incomes Tax Reform Group (LITRG) is urging anyone who is concerned to read its detailed Q&A guidance to understand what is changing and what it means for them.

The new rules, which have caused a great deal of confusion, mean that HMRC will be receiving more information from online platforms than it was before. The new rules do not mean that everyone selling items on these platforms will be liable to pay tax.

When an individual is selling things they no longer want, e.g. books, toys, clothes etc., the reality is they are generally selling at less than they paid for them. Their activity is unlikely to be regular, organised or developed and they are not operating with a view to making a profit. They are therefore unlikely to be trading. The LITRG explains in what circumstances an individual is likely to be trading in its guidance: Tax if you work in the gig economy.

The data collected by platforms will be sent to both HMRC and the individual themselves by 31 January 2025.

However, the changes do mean that, if people who should have been reporting their income from online platforms have not been doing so, HMRC will be more likely to find out about it. Although, even then, if HMRC find out about income from online platforms, there are some legitimate reasons why people do not need to report it. 

Broadly, HMRC say that its necessary to register and send it a tax return unless: the individual has trading or miscellaneous income (before expenses are deducted) of under £1,000 and the trading allowance applies; or they are selling personal items that they no longer want.

It is also important to remember that, even if an individual’s activity is not captured by the new rules, they still need to check their position, as the money they are making could still be taxable. In particular, the following types of people probably still need to do something about their taxes:

  • if an individual falls within the ‘small’ Category B exemption mentioned above but are still trading;
  • if the individual is paid outside the platform for some element of their work, perhaps in cash or in kind or gifts;
  • if the individual has a business commercially selling direct to the public in fairs and boot sales as well as through a platform (for example, if they had an old antique coin business);
  • if the online platform account the individual works under is not in their name, but a friend or relative’s (meaning HMRC will think the income belongs to them).

If an individual is required to declare their income and they are not doing so, then they need to take some action to bring their tax affairs up to date. If they have not declared income for previous tax years, they may also need to take action to correct those years. Failure to meet tax obligations, including declaring certain income, can lead to penalties and interest charges. In rare instances, people selling high value personal items like jewellery and paintings may be caught by capital gains tax, which the LITRG explains further in its guidance: Selling shares and other assets.

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