In a bid to tighten tax regulations and combat tax evasion, HMRC has introduced legislation that will impact sellers on platforms such as eBay, Vinted, Etsy Airbnb and Uber.
As of 1 January 2024, many digital platforms are now mandated to collect and share transaction and seller details with HMRC. Forming part of a global initiative by the Organisation for Economic Co-operation and Development (OECD), the rules mean that the tax authorities will have significantly more information about who is selling goods and services online.
HMRC commented on the measure in a statement, saying:
“These new rules will support our work to help online sellers get their tax right the first time. They will also help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers.”
Under the new legislation, online platforms will be required to report details on a yearly basis about their registered sellers to HMRC, including the identity of sellers, their earnings, and their bank account details. The records must start from 1 January 2024, with the first reports to HMRC expected at the end of January 2025.
However, misleading reports of a new ‘side hustle tax’ have caused many taxpayers to falsely believe that their obligations have changed.
While the impact of this legislation will be wide-reaching, it does not create any new tax obligations for individuals trading online.
Victoria Todd, head of the Low Income Tax Reform Group (LITRG), reassured taxpayers:
“The new rules have caused a great deal of confusion, but they simply mean that HMRC is receiving more information from online platforms than before.
“If you are following existing rules and declaring your income as required, then you don’t need to worry or do anything differently.”
Who will be affected?
According to the Association of Accounting Technicians (AAT), the new reporting rules apply to “sales of both goods and services through digital platforms”. This doesn’t just encompass eCommerce websites, but also platforms that facilitate services such as taxi hire, food delivery and short-term accommodation letting.
Platforms will need to share information on all sellers unless they count as a ‘casual seller’. These individuals must have an annual trading income of no more than €2,000 and must not make more than 30 online sales per tax year.
Furthermore, as the rules form part of a global initiative by the OECD, HMRC will receive data from both UK and overseas platforms.
Currently, individuals generating trading income exceeding £1,000 annually must register as self-employed and submit a self-assessment tax return. Those with trading income below this threshold are often exempt from filing a tax return.
Generally speaking, the new rules are likely to only impact the online traders who have historically failed to meet their reporting obligations to HMRC.
However, sellers trading on digital platforms should take care to maintain their financial records and stay informed about the latest tax regulations to avoid potential non-compliance penalties.
Please speak to us if this will affect your business and we can advise on your reporting obligations.