New data sharing rules for online marketplaces

As we welcome 2024, the eager amongst us may be looking forward to new business ventures and opportunities in the year ahead. This could include the creation of a new online business, or the growing of an existing online business.  Research suggests that almost one third of UK adults currently have a so called “side hustle” with a further 42% considering starting a new side hustle to boost their income.

Outline of changes to HMRC powers

Effective from 1 January 2024, HMRC have been granted new powers. Digital platforms which enable people to earn secondary income streams, including Etsy, Vinted and Ebay must now collect and report seller information and income to HMRC. These digital platforms must report sellers’ income to HMRC by 31 January 2025, with data collection commencing from 1 January 2024. The new measures are part of the Organisation for Economic Cooperation and Development (OECD)’s global bid to tackle tax evasion.

What does this mean for sellers?

The newly announced measures have caused confusion to many, with taxpayers worrying about having to pay a new “side hustle tax”. It is important to reiterate that the new rules only relate to reporting requirements between various online platforms and HMRC. The rules do not create new tax obligations and liabilities for individuals. The rules about who needs to declare their income, register for a self-assessment tax return and how much tax people must pay on their secondary incomes are already in place and have not changed.

Under current legislation, if you buy goods for resale, or sell goods with the view to making a profit, then you are likely to be trading and will have to pay tax on your trading profits. However, if your total trading income is less than £1,000 (before deducting expenses), you will be able to claim the £1,000 trading allowance and will not be required to inform HMRC of this income nor pay any tax on the profits.

Emma Harrison
Author, Emma Harrison

Therefore, provided your income from the digital platforms does not exceed £1,000 in a tax year, there will be no requirement to report this extra income to HMRC under the new rules. However, where additional income streams exceed £1,000, some taxpayers may need to register for self-assessment and report this additional income to HMRC.

HMRC have issued some guidance that online platforms will only pass on sellers’ data to HMRC automatically if they are selling 30 or more items per year or have total earnings over the equivalent of €2,000 (currently around £1,700). However, it is very important to understand that even if your selling activity is not captured by these new rules, you still need to check your income position, as the income you are generating may still be taxable, as shown in the below example.

A worked example

A seller makes personalised jewellery and sells it to customers via a digital platform. The taxpayer earns around £1,200 of income from this trade per tax year (around 20 sales in the year).

This income falls below the threshold required for the digital platform to report this income to HMRC. However, as this income (before expenses) exceeds £1,000, the taxpayer is obliged to report this income on their self-assessment return, albeit without this income being directly reported to HMRC by the digital platform.

If you are currently selling or planning to sell any products or services using a digital platform, please contact us for further information so we can confirm any requirements with you.

Photo by Brooke Cagle on Unsplash

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