Side hustle tax: new reporting rules for online marketplaces

HMRC has launched a crackdown to make sure people selling goods or services through online platforms like eBay, Vinted and Airbnb are taxed correctly.

New rules have come into force that mean digital platform operators in the UK must collect and verify information about ‘side hustle’ earners who use their online marketplaces.

Anyone who earns more than £1,000 a year through their trading – before deducting expenses – must pay income tax on these earnings.

What are the new reporting rules?

From 1 January 2024, digital platform operators must report information to HMRC about online sellers using their platforms. The tax body will use the information to help sellers pay their taxes correctly and to identify, and tackle, non-compliance.

Online marketplaces must also provide sellers with a copy of the information they sent to HMRC.

The digital platforms include apps and websites used to sell goods and services, such as taxi and private hire, food delivery, freelance work and short-term accommodation lets.

These platforms must report sellers’ income by January 2025.

Background to the new measures

The Government said the regulations support its work to “help taxpayers get their tax right first time, and to bear down on tax evasion”.

HMRC already has the power to access information from UK-based platforms on the income of sellers on those platforms.

But now the tax body is implementing rules under the Organisation for Economic Co-operation and Development (OECD). That means HMRC can exchange information with other tax authorities to access data, quickly and efficiently, from platforms based outside the UK.

The rules for online sellers

Following speculation in the media about ‘side hustle tax’, HMRC has sought to clarify when people may need to pay tax.

In order to pay tax on the goods or services you sell online, you either have to be trading or making a capital gain.

If you’re just selling some unwanted items that have been laying around your home, such as the contents of a loft or garage, it’s unlikely you’ll have to pay tax.

But if you buy goods for resale, or make goods with the intention of selling them for a profit, then you’re likely to be trading. You’ll need to complete a self-assessment tax return and pay income tax on your profits.

However, if your total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, you wouldn’t be required to tell HMRC or pay any tax on the profits.

For tax purposes, an online marketplace is any website or mobile phone app that handles and enables the sale of goods and services from individuals and/or businesses to customers.

My advice for people selling online

In times of economic difficulty, it can be hard to understand where the line is drawn between making money trading online and selling items to raise much-needed funds. This can lead to difficult conversations with HMRC if you don’t declare your profits from online selling.

There must be an element of common sense. So, if you regularly sell online and do this with a view to making a regular profit, it’s likely HMRC will consider your trading profits to be taxable.

You can take advantage of the £1,000 tax-free annual allowance, and all individuals have their personal allowance. But over 12 months, these profits could exceed the allowances and tax will be due.

What’s more, if these earnings are deemed to be trading income, you may also need to pay National Insurance.

It’s important to be aware of what HMRC would consider to be trading activity and to take the necessary steps to register yourself for self-assessment.

Guidance for tax agents

If you have clients who might be seen as online traders, you should explain the tax implications to them.

However, it’s not always clear-cut. For example, what if someone inherits various items and sets up an online shop to sell them? Where’s the line between selling unwanted goods and making the decision to trade?

You could look at a client’s social media accounts to give you an idea of what HMRC will see if they decide to investigate that particular person.

Ultimately, if HMRC deems the client to be trading, it could be costly in terms of tax, National Insurance, interest and penalties.