Taxing online selling: What’s really changing?

Misunderstandings and confusing media coverage last week have created uncertainty about how transactions made via online platforms such as Vinted, Ebay and Airbnb should be taxed. Given TaxWatch has long campaigned on issues of tax compliance and administration, we thought we should provide some facts to help unpack what’s changed and what remains the same.

From 1^st January 2024, online sales platforms have a new requirement to provide data to both HMRC and the seller, to help identify transactions that are liable to UK tax but might have not been declared properly. This change was mis-labelled by some in the media as a new ‘side-hustle tax’.

Important points:

• There’s no new tax. The rules about whether a transaction is taxable – either individually or as part of a series – as ‘trading’ (or making a capital gain) have not Nor has the rate of tax, or the payment and tax return due dates.
• The re-sale of personal possessions bought and used by an individual are extremely unlikely to be taxable in the majority of cases.
• The trading allowance and property income allowance provide £1,000 of each category of income that can be earnt per individual per tax year before an obligation to notify or pay tax on those receipts arises.
• Profits from ‘side hustle’ businesses represent self-employment and were always liable to tax.
• The new disclosure requirements are designed to make it easier for HMRC to identify and collect tax due on business transactions that might not have been disclosed previously. Only sellers with 30 or more transactions and revenues of over €2,000 (around £1,700) are affected.

There are a few issues that TaxWatch notes in relation to this development:

• There’s a mismatch between the timing of the new disclosures (covering 12 months to 31^st December) and the tax year (the 12 months to 5^th April).
• There’s also a mismatch between income that’s disclosable and what might be taxable, for example:
  • Many sales transactions in volume and value terms won’t be classed as trading – e.g. selling one-off personal possessions.
  • Where the sales are part of a trade (the rules are complex, and fact dependent – see HMRC’s ‘Badges of trade’ guidance) the amount that’s taxable would be profits (i.e. net of allowable expenses), rather than sale revenue figures.
  • Where sales are part of a trade the profits per platform need to be aggregated. I.e. transactions might be below the reporting threshold per platform but when added up across platforms that the individual is using they are still taxable.

The timing of this announcement is unfortunate, given how poorly the development has been communicated and the level of queries it has generated. The Income Tax self-assessment deadline for 2022-23 tax year is approaching (31^st January 2024), making this a period where there is more pressure on HMRC’s customer service channels.

TaxWatch supports HMRC getting more data on business activity that is currently undeclared and not being taxed, as it represents a sizeable chunk of the UK’s tax gap. The media reporting of this change has been extremely unhelpful as it has created panic and confusion for a sizable proportion of individuals who don’t have additional tax to disclose or pay. The UK’s tax year, running to 5^th April, creates additional quirky complexity for the self-employed to navigate.

Reporting all taxable business profits to HMRC is important, as errors can trigger penalties and interest on top of the tax due.