The taxman is cracking down on online resellers who use digital platforms to make extra cash and fail to declare it as income.
New rules which came into force on 1 January require platforms to collect information about users, which they will have to report on directly to HMRC from January 2025.
HMRC already had the power to request this information, but new rules mean it will happen automatically – making it easier for the taxman to go after resellers who are failing to pay tax.
Target? Online clothes resellers are more likely to be flagged to HMRC as potentially needing to pay tax – but the rules around when tax is owed have not changed
However, the new rules have led to some confusion over whether it means people doing a clear-out, or selling unwanted gifts, will be stung with additional taxes.
We explain why the new rules will have little to no effect on the average online seller, and what it really means to be an online trader.
What are the new rules and why have they changed?
From 1 January, digital platforms that allow people to sell goods or services will have to collect information about any income made by their users.
From next January, platforms will have to report this information directly to the tax office for the calendar year 2024.
Once HMRC has this information, it can share it with other tax authorities abroad which have also signed up to the rules.
It would mean that people renting out a home abroad through a platform like Airbnb or reselling items on eBay would be forced to comply.
But as is already the case, they will only need to pay tax if their earnings breach a certain threshold.
HMRC can already ask platforms for this information, but the new rules are intended to make the process quicker and more efficient.
Most importantly, it does not create any new tax obligations for individuals selling online.
The rules about who needs to declare income, who registers for self-assessment and how much people tax people pay remain unchanged.
If you’ve already been declaring your income to HMRC because it’s over the current trading allowance or capital gains tax (CGT) allowance, then you don’t need to do anything differently.
Instead, the rules will make it easier to target people who have slipped under the radar and not declared income made through these platforms.
> What is capital gains tax and how much will I pay?
Do I have to pay tax if I sell clothes on eBay or Vinted?
Tax bill: There have been no changes made to what tax is paid by people selling online on sites such as eBay or Vinted
The introduction of these new rules has led many to believe that they will need to pay tax on selling unwanted items or gifts online.
HMRC itself says you could be classed as a ‘trader’ if you regularly sell goods or services through an online marketplace, meaning that you would have to pay tax on anything you make over £1,000.
However, it is slightly more complicated than this. If you sell old clothes a few times, you’re unlikely to be stung.
It all depends on what you are selling, why you’re selling and whether you’re making a profit.
If you’re doing a clear out of old clothes you no longer want, and at less than they cost to buy, then you are not going to be classed as a ‘trader’.
Who is classed as an online trader?
Unfortunately, there is no one definition of what constitutes a trade, which is why the new rules have caused some panic.
Toby Tallon, tax partner at wealth and accountancy firm Evelyn Partners, says: ‘These rules have have been around for years. There aren’t hard and fast rules and there’s no statutory definition of a trade.’
You can, however, use the ‘badges of trade’ tests, which are used by HMRC to help determine whether an activity is a trading activity.
These include whether a seller is seeking to make a profit and the number of transactions. If it is a one-off sale, you are unlikely to be classed as a trader.
However, it’s not as simple as ticking a few of the badges and hoping HMRC will accept it is not a trade.
One case found that a film director on business abroad bought 1million rolls of toilet paper and then sold it on his return to the UK and made a profit of £11,000. In this case, it was clear the only purpose of reselling was for a profit.
Tallon says all nine tests need to be consider, with weight assigned to each test, and in the round, depending on the circumstances.
HMRC gives other examples of when you might have to register for self-assessment as a trader and pay income tax.
Someone making greetings cards in their spare time, first at cost price, and then for profit, would be trading as they’re selling with the intention of making a profit.
It also refers to someone who collects model cars, and sometimes buys and sells them but also looks for swaps. The swaps are designed to complete a set, which are more valuable than individual models.
When they have a complete set, they offer it for sale or a swap to make a profit. HMRC says this is likely to be classified as trading.
Tallon says that as a general rule, if you consider something as a side hustle then it is probably considered a trade.
Reselling: If you’re buying and selling to make a profit you will be considered a trader
What tax do you have to pay if you’re a trader?
If you are a trader, you are given a trading allowance which allows you to turn over £1,000 before paying tax.
Tallon says: ‘To keep things simple, you can have a block £1,000 deduction but that means you can’t claim any other expenses. It’s a substitute so it’s on turnover on profit.’
This means that anything you charge will be included within this £1,000, including any postage and packaging fees.
The new rules mean that anyone making 30 transactions in one calendar year will likely be flagged as a potential trader
‘If you had what you thought was a genuine side hustle, then you would have turnover but also have costs against that – the cost of buying, improving, repairing, storing.
‘If you charge an extra £5 to send in the post, you’d sell for £100 plus that £5 for expenses. That trading allowance means you can’t claim expenses.’
If you make over £1,000 in a year, you would need to register for self-assessment.
Do you have to pay tax if you’re not a trader?
If you’re certain you do not meet the threshold for trading, then you will not pay income tax.
If you are selling unwanted clothes it would not be subject to any tax liability if it’s not making a profit.
However, if you’re selling unwanted items that could sell for a profit – paintings, antiques, jewellery – you may be liable to pay capital gains tax (CGT).
Tallon: ‘If you inherited an antique table and chairs from your granny and they were really nice but you no longer wanted them, you might sell them.
‘If that was the only thing you did, the badges of trade test would probably mean it wouldn’t be a trade, as there was no intention to make a profit, it was a one-off and you didn’t buy them.
‘This wouldn’t fall into income tax, it would fall into CGT rules.’
The CGT rules say that individual items worth less than £6,000 are excluded, so if sold they will not trigger a tax liability.
More often than not, if you’re selling something secondhand it’ll be going for less than what you bought it for.
Tallon says HMRC tends to ignore ‘hobby’ activities that tend to lead to a loss like this, because it could then be claimed as an expense.
Similarly, selling unwanted personal possessions doesn’t count as taxable income.
Are you profiting? More often than not, if you’re selling something secondhand it’ll be going for less than what you bought it for – and this means you are unlikely to be liable for tax
When will HMRC be notified?
The new rules mean that anyone making 30 transactions in one calendar year will likely be flagged as a potential trader.
It is unclear whether this is 30 transactions per platform or across all online platforms.
It’s important to remember that the platforms themselves are not making a call on whether someone is using it as a side hustle, but reporting solely on the number of transactions.
Tallon says: ‘The reporting obligations from platforms is about the number of sales. It is not a judgment of whether it’s a trade or not a trade, and within the CGT regime. They’re not being asked to do that.
‘That reporting doesn’t mean they’re saying you have a trade and HMRC will necessarily take that on. HMRC expects you to report.’
Instead, it is more likely that platforms will notify HMRC of users making more than 30 transactions in a year, and send ‘nudge’ letters reminding traders that they need to declare income.
Tallon says: ‘If you make 30 transactions on a particular platform you should expect a letter from HMRC asking for clarification.’
The tax liabilities for sellers have not changed, but HMRC, via these new rules, will now have a better idea of who is making some extra cash online.
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