HM Revenue & Customs is stepping up its investigation into ‘side hustle’ income, with online platforms such as eBay, Vinted and Airbnb required to submit information on users’ incomes for 2024 by the end of this month.
However, concerns have been raised that the discrepancy between the UK tax year (April to April) and the OECD reporting period (January to December) could lead to many informal sellers making mistakes on their tax returns.
The Low Incomes Tax Reforms Group (LITRG) warns that people may inadvertently provide inaccurate figures to HMRC because the data they receive relates to the calendar year and not the tax year. For example, only revenues from January to March 2024 would be relevant for a self-assessment due this month, but the total figure submitted by the online platforms would cover all 12 months of 2024.
“Only a quarter of the data people will receive is relevant to current tax returns,” said Meredith McCammond, technical officer at LITRG. “That could lead to confusion, especially for those filing for the first time and needing help during HMRC’s busiest period.”
Under the new guidelines, any platform user who earns more than £1,700 or makes 30 transactions in a year will have their information passed to HMRC. While this is not a new tax, it could result in taxes being levied on individuals who previously did not know they had to declare online sales. Dawn Register of accountancy firm BDO notes that despite incomplete data, HMRC will still have sufficient information to launch an investigation if a seller’s turnover is found to be high.
“The new rules could very well mean that there will be nasty surprises for people who do not know the existing legislation or have not declared their income,” says Register. At the same time, HMRC could be surprised by how much some informal sellers actually earn online.
Many informal sellers and ‘scavengers’ will be protected by the UK Trading Allowance, which allows individuals to earn up to £1,000 a year by trading occasionally without paying tax. A spokesperson for HMRC stressed that “absolutely nothing has changed” for people selling unwanted personal items. The new focus is on those who trade consistently or make a profit on sales.
Miruna Constantin of RSM UK recalls that when the procedures were introduced last year, public concern increased: “Chaos ensued as people thought HMRC would suddenly start taxing all the extra money they made from selling unwanted Christmas gifts. HMRC has since provided detailed guidance.”
Practical steps for sellers
The new data, which will be reported in quarterly blocks, should help sellers better align platform statements with their tax obligations. But for a smooth process, experts advise to pay close attention to:
• dates: Find out which quarter applies to your current self-assessment period (January through March 2024 for the 2023-2024 tax year).
• allowances: Please note that the first £1,000 of trading income is generally tax-free, and separate capital gains rules may apply if you make a profit on the sale of valuable items.
• If in doubt, ask: If you’re unsure, seeking advice from HMRC or a tax professional can help avoid costly mistakes or investigations.
With this extensive reporting, the government hopes to reduce hidden or unintentional non-compliance. But until sellers are sure how and when to apply the numbers from eBay, Vinted and other platforms, the risk of ‘nasty surprises’ remains.