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Income Tax and selling online

In recent weeks there has been a flurry of online activity discussing the new law that will require online marketplaces to report information about income made by their users to HMRC.

The discussion has led to many people asking questions such as “Will I have to pay tax on the money I make from selling my old belongings on Vinted or eBay?”

The amount of people searching for information about ‘side hustle tax’ has increased by 1,415% due to concerns over HMRC online platform reporting rules.

Although side hustle tax may be the most searched phrase, online selling platforms have also had a surge in the amount of people attempting to find out more information on their tax liability.

‘eBay tax’ searches have flown up by 874% and ‘Vinted tax’ by 882%. ‘Depop tax’ searches grew by 275% and ‘Airbnb’ tax searches increased by 117%.

In terms of geographic search, Bristol had the highest online traffic in relation to ‘side hustle tax’, followed by Manchester and Liverpool. The least number of searches in the UK came from Glasgow.

These figures show just how many individuals are worried about whether they are complying with the long-standing tax rules.

Although many might be worried that they have not declared earnings to HMRC for selling old clothes and unwanted items on the plethora of online platforms, the Low Income Tax Reform Group (LITRG) said that media coverage had created confusion when it referenced ‘a new tax’, when actual tax rules were not changing. Only the platforms themselves are affected by the new HMRC reporting rules.

LITRG stressed that this was not a new form of tax and there is no change to the obligations for paying tax on these sales as those who earn over the threshold have always had to pay this. There will now just be more data shared between the online platforms and HMRC to track those who do earn over the £1,000 cap.

Victoria Todd, head of LITRG said: ‘We understand there is a lot of worry among people who sell via online platforms about the changes, including for those who sell personal items they no longer want or to clear space in their home.

‘However, we want to reassure sellers that there is no new “side hustle tax” and no changes to the tax rules about what income needs to be declared to HMRC or when it needs to be declared.

‘In particular, people selling unwanted personal items such as their children’s old clothes or toys are not likely to be “trading”. Therefore, even if it is a significant amount, any money they make is generally not taxable.'

The key point to remember is that the rules for declaring income and paying tax on it have not changed. HMRC had the power to request information from online marketplaces anyway; from 1 January 2024 the new rules will mandate digital platforms to give the information to HMRC automatically.

If you sell your old clothes or other household items online, it’s unlikely that this will constitute a taxable transaction, but if you undertake a commercial venture with a view to making a profit (e.g. buying stock to resell at a profit), this is likely to be considered trading and tax liabilities may arise.

Furthermore, if you are carrying on a trade, there is a £1,000 Trading Allowance which means sales income up to this level can be disregarded for income tax purposes.

If you think you may be liable to tax on trading income, please speak to us.

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