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Just when you thought times were tough enough, His Majesty’s Revenue and Customs (HMRC) are cracking down on side hustles by people desperate to make extra income.
Like everyone else, the tax office is looking for new ways to fill its coffers so if you sell goods on Vinted, Etsy or eBay then these companies now have to pass on information about you to ensure you pay tax and declare your income through self-assessment.
The platforms will have to declare how many sales their sellers have made and the income they’ve generated. New legislation started on January 1 and they will have to automatically share information with HMRC by January 31 next year – the first lot of data-sharing will cover the 2023/24 tax year.
Changes were implemented after the UK signed up to an agreement with the Organisation for Economic Co-operation and Development (OECD) to tackle global tax evasion. Previously HMRC had access to seller information from UK based online platforms when required. The new automatic system also covers overseas platforms.
Sellers rarely turn a profit but such platforms have become a breeding ground for businesses who specialise in reselling rare and valuable items. The new rules will reduce the risk of businesses slipping through the net and avoiding tax.
Twenty eight countries have signed up to the OECD rules.
No. Only if you are selling 30 or more items a year and have total earning £1,735. But don’t forget that you may have to pay tax on that amount. Currently you can earn £1,000 or less and you shouldn’t have to pay extra tax because you are covered by what is known as the trading allowance. The limit applies to your overall earnings across all platforms.
If you are concerned that you might owe tax on your extra income, then you should fill in a self-assessment tax return by going to gov.uk and submit it for the 2022/2023 tax year by Wednesday, January 31. Even if you submit it through self-assessment it doesn’t necessarily mean you owe any tax, depending on what allowances you are entitled to.
If you don’t think you owe tax, you don’t need to do anything.
To be fair to HMRC, it isn’t. If you didn’t owe tax on these earnings previously, you won’t have to start paying tax on them now. What it does do is make it easier for the tax office to find out what people are making on digital platforms and that means you do need to check whether you are going to owe tax on future earnings.
The rule change will also allow HMRC to share data with tax authorities in other countries that have also signed up to the new legislation.
An HMRC spokesperson said: ‘For people selling personal possessions online, absolutely nothing has changed. the reason we’re asking digital platforms to share information with us is to ensure businesses operating via these platforms pay the correct amount of tax and do not have an unfair tax advantage over high street and other traditional businesses’.
If you are flagged by a digital platform, the company is required to send you a copy of the information that has been submitted to HMRC which should help you declare the correct income and make complying with tax obligations easier.
The trading allowance for reselling items can’t be used by sellers who already receive income elsewhere. So, if you receive income from a company you or someone connected to you controls, an employer or the employer of your spouse or civil partner, you cannot use the allowance.
Vinted’s chief executive Adam Jay said: ‘It’s actually quite a small proportion of our users who will trigger this threshold. It’s only people making a profit from selling second-hand items that might be eligible to pay tax. We’ll be actively reaching out to those sellers explaining what the new requirements are and why they exist’.
You are protected by the £1,000 trading allowance, however claimants of low-income benefits like Universal Credit can be asked at any time to provide bank statements or other documents to prove the information about your financial situation is accurate. So it’s important to be clear about your earnings. If you report an income of £2,500 or more, your Universal Credit payment will automatically stop.
Many sellers on sites like Vinted, e-Bay and Depop have hit out at the rules saying that they’d already had to pay tax (VAT) on the items they are selling and described the rules as grossly unfair when we are in the grips of a cost of living crisis.
Nevertheless one tax expert from the Association of Taxation Technicians said: ‘Don’t wait for the letter to come through or for HMRC to contact you. It’s always better if you think there may be tax for you to pay to declare it upfront as there may be penalties if you don’t’.
For more information go to gov.uk to find out if these changes affect you.