Digital platforms now have to collect extra information about sellers
“Do I need to pay tax on my Vinted/eBay earnings?”
Due to recent headlines, this has become a key question as we enter the new year and self-assessment tax returns are at the forefront of our team and clients’ minds.
Please be aware that currently, the only change is for digital selling platforms who, from 1st January, now have to collect extra information about sellers, including how many sales they’ve made and how much income they’ve generated.
It is not new for HMRC to access seller information from UK-based online platforms. They have previously done this as and when required and we have seen this with our own clients – in particular those with highly active Paypal accounts.
|So do you need to pay tax?
The short answer is no, unless you’re ‘trading’. Put simply, trading is making or buy goods with the intention of selling them. Traders need to declare their income to HMRC through self-assessment.
Furthermore, there is no urgent deadline, as platforms (both in the UK and overseas) have to start automatically sharing seller information with HMRC by 31 January 2025 (data will cover the 2024 calendar year).
However we always recommend getting to know the rules (and therefore what you need to do, or not do) early, so please read below our chosen excerpts from MoneySavingExpert’s guide to selling goods online.
If, based on this, you think you owe tax, please tell us as soon as possible, particularly if we file your self-assessment tax return. We can of course double check this along with any allowances you’re entitled to.
If you have any questions remaining after reading the below, please do not hesitate to contact our Tax Team, on 01642 606003 or , who’ll be happy to help.
|Commentary from Ian Kelly, Tax Partner:
“The difference between ‘hobby selling’, which could be said to include the sale of personal effects on online marketplaces, and formal online selling can become blurred.
The definition of a trade has cropped up in many a tax case over time but at its most simplest trading is usually considered to be commercial activity with a view to the realisation of a profit but from which there can be a risk of making a loss.
HMRC have been paying closer attention to the likes of Paypal accounts to review banking activity that has, perhaps, for tax evasion reasons been detached from high street banking.
Clearly, evidence of the purchase of a significant volume of goods for sale; the likes of damaged stock and traditional and online advertising of goods and products for sale are, HMRC would argue, pointers to trading rather than ad-hoc selling.
Only time will tell, presumably by HMRC enquiry statistics, if there are challenges to what people would argue is private selling.
If you have concerns in this area please don’t hesitate to get in touch.”
1. Your information WON’T be automatically shared if you only sell a small number of goods
If all you’re doing is selling goods online, firms will ONLY pass on data to HMRC automatically if you’re selling 30 or more items a year OR have total earnings over the equivalent of €2,000. So if you’re doing a lot less than that, it isn’t an issue. However, it’s worth noting you may still have to pay tax if you earn £1,000 or more from selling.
Sites and apps will also have to share information on anyone who provides services (such as food delivery, childcare, plumbing and so on), or rents out property or a vehicle. If a digital platform you use passes your information on to HMRC, it will also send a copy to you – you can use this to double-check your earnings and make sure you definitely don’t need to file a self-assessment tax return.
Under the new rules, a digital platform is any “app, website or other type of software that connects sellers to the consumers of their goods and services”, according to accounting firm PWC – meaning lots of popular sites and apps are covered.
However, the new measures DON’T apply to cashback sites, such as Quidco and Topcashback, as cashback is not taxable.
2. This isn’t a new tax – but it does give HMRC more visibility over your income
It’s important to note that the rules around who pays tax on earnings made from digital platforms have NOT changed. If you didn’t owe any tax on these earnings before, and you continue to use these platforms the same way, you won’t have to start paying tax on them now.
What has changed is that HMRC will be able to find out what people are making on digital platforms more easily, so now is a good time to check if you owe tax or if you may do so for future earnings.
The change also means that HMRC can share this data with tax authorities in other countries that are signed up to the new rules, and vice versa. So if you are living in the UK and making money on a platform that’s based in another country, the tax authority in that country will be able to let HMRC know about this. It’s not clear yet which countries are signed up, though it’s expected to include most EU member states.
3. If the total amount you earn via a platform in a tax year is £1,000 OR LESS, you probably don’t need to tell HMRC or pay any extra tax
This is because you’re likely covered by what’s known as the ‘trading allowance’. This entitles you to earn up to £1,000 tax-free without having to report the income to HMRC or pay any income tax on it.
Note that what counts here is the income before any platform fees are taken off – NOT what you end up with in your bank account.
4. If the total amount you earn via a platform in a tax year is ABOVE £1,000, you LIKELY need to tell HMRC and MAY have to pay tax on this
It all depends on how you made this money – note that the limit applies to your overall earnings across all platforms.
– If the earnings were solely from selling goods online, the key question is whether or not you’re considered to be “trading”.
For example, if you’re buying furniture, decorating it and selling it on for more than you bought it for, this would be considered trading (unless it was a one-off). But if you cleared old stuff out of your attic and sold it, you wouldn’t be trading.
There are some grey areas, however – you can check HMRC’s online guide to work out if you need to tell it about income made from online sales.
Separately, if you’ve made a gain by selling certain high-value items you own for £6,000 or more each – for example, jewellery, paintings, antiques, coins or stamps, or sets of goods such as matching vases – you may have to report this to HMRC and pay capital gains tax. But you won’t pay capital gains tax on top of any income tax – it’s one or the other.
– If the earnings were from renting out property, providing services or a combination of different activities, in most cases you need to declare this by submitting a self-assessment tax return. You can check if you need to tell HMRC about additional income using this Gov.uk tool.
Renting out part of your home to a lodger? You may be able to earn up to £7,500 tax-free under the ‘rent a room’ scheme.