The UK government is currently pursuing a massive clampdown on tax evasion. Digital platforms will now have to make annual reports to HM Revenue & Customs about the people who sell goods or services through them - but what does that mean for you?
Many of us are supplementing our incomes by getting crafty on Etsy, or making a pretty penny by reselling unwanted clothes on platforms like Vinted and Depop, and unfortunately, the new tax rule could affect you directly.
If you are feeling stressed about accidentally falling into a tax evasion trap, don't worry - it really isn't as overwhelming and daunting as it sounds. Let’s run through all the things you'll need to consider in order to work out whether or not this new scheme will impact you.
How do I know if I should be getting taxed on extra earnings?
The changes come into force from 1 January 2024 therefore sellers will need to start keeping a record of their sales from this date. However, the first reports to HMRC won't be filed until January 2025.
HMRC has previously been able to get this information by specifically asking for it, but the new change means digital platforms will now have to routinely provide information each year.
If your side hustle earns you less than £1,000 per tax year (6 April - 5 April) then you won’t need to declare anything as these earnings are covered by the trading allowance.
© Ink Drop/ShutterstockWhy are these rules coming into practice?
The main reason for these changes is that HMRC has signed up to the Organisation for Economic Co-operation and Development (OECD) rules. This is a 38-country partnership that operates as a policy hub for economic prosperity.
Because so many digital platforms are based overseas, a number of people have been able to avoid paying tax on certain side incomes. HMRC’s inclusion into the OECD will mean that investigations can take place which look at the tax affairs of people earning an income via a company that operates abroad.
Am I exempt?
There is an exemption where platforms won't have to report information about what they call 'casual' or 'occasional' sellers. It’s a fairly low bar; if you are making fewer than 30 transactions a year and no more than €2,000. Transactions also have to be made in euros, not pounds as this is an adaptation of the OECD rules coming in.
© VolurolI spoke to Emma Rawson, Technical Officer at The Association of Taxation Technicians, and she had this to say about how the data will be shared with HMRC.
"HMRC will be sharing the information it gets with other countries and also receiving information from other countries. And so if you're selling on platforms that aren't in the UK, you might still actually have your information sent to HMRC," she explained.
"The concern really here is people who are maybe selling a bit but not quite up to the point where they think that's trading or they're not sure if they're trading. HMRC can argue that and come and ask for tax money that should have been declared."
Kay from Leeds has made £1,500 since May reselling items on Ebay and Vinted. She told me that the money she earns helped pay for her recent holiday abroad but isn’t enough to live off. She isn’t fully aware of how the new rules will impact her extra cash flow.
© Ascannio/ShutterstockShe said: "I heard on some of the Facebook groups about the new rule and they will ask you to verify your identity. But I don't know if they actually will.
"What I am selling is maybe classed as commercial selling, but I've done it on Ebay for years and I've never had a problem. I’m not making ridiculous money even though I probably should be declaring it. But I'm happy to take that risk."
Better safe than sorry
Emma warns that it’s best to get ahead of the game - or face a hefty tax bill down the line. If, like Kay, you're unclear what the changes mean for you, it's worth reaching out to HMRC.
"If anybody's selling a lot of stuff, even if they conclude that they don't know the rule and they don't think they have to file a tax return and pay tax, I would keep records of what they sold or why they sold it just so that if HMRC do ask questions, they've got their arguments in mind," she advised.
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"Check you're hitting that threshold and get in touch with HMRC because what you don't want is for them to come to you several years down the line and ask why you didn't tell them. That's when there'll be interest on the tax due you should have paid and potentially penalties as well.”
If you already know that you will be earning over £1,000 per tax year you will need to make sure you file a self-assessment tax form.
