HMRC have reported that they have brought the rules into place to help side hustlers, freelancers and business owners get their taxes right first time. But many see this as an effort to catch individuals out instead of going after the big corporations deemed to not be paying enough tax.
What are the new rules?
The new rules can be found in section 349 of the Finance (No.2) Act 2023.
They require all major digital platforms operating in the UK to send HMRC information regarding the earnings of sellers from 1 January 2024. The first exchange of this information will take place in January 2025.
HMRC will use the information they are given about the earnings of individual sellers to cross-check with figures reported on self-assessment tax returns helping to confirm that individuals have declared their income from platforms correctly.
Anyone who is classified as a trader, earning more than £1,700 across 30 transactions or more will have their income included in the reports submitted by digital platforms to HMRC.
A trader typically is a person who buys and sells goods to make a profit consistently. For example, a person who buys furniture on eBay, refurbished it and sells it on Etsy with a view to making a profit.
If you are selling personal belongings like old clothes or unwanted items around your house it’s unlikely you’d be considered a trader because you’re not running a ‘business’ or making any profit on what you sell.
What will change?
Moving forward, sellers on digital platforms can expect to be contacted for additional personal information such as tax identification numbers to ensure HMRC identifies individuals correctly and matches them to the right tax records.
Digital platforms themselves have significant work (and costs) to incur to implement the changes and systems required to collate and transmit the data on sellers safely to HMRC.
What should you do?
If you are registered as self-employed and declaring your income from digital platforms correctly then you can expect no impact, except for the potential request for additional personal information.
If you are earning an income from a digital platform but are not declaring it officially, then it might be time for you to register your side hustle as a business.
It’s worth noting that even though information on sellers who earn less than £1,700 won’t be included as part of the information sharing between digital platforms and the tax authorities, HMRC requires all individuals earning more than £1,000 in income (not profit) to register as self-employed.
The tax rules have remained unchanged. What has changed is the exhange of information between online platforms like eBay and HMRC regarding individuals and their earnings.
If you are selling a few personal items on Vinted, then you’re unlikely to be affected and won’t need to pay any tax. The exchange of information is to ensure those individuals that are regularly earning money online are paying their fair share of tax.