If you are selling anything via any online marketplace, these new tax rules could affect you. HMRC has released new measures in an effort to find those evading tax via these platforms. Here is what you need to know.

What are the changes for online marketplaces and sellers?

In an effort to clamp down on tax evasion, the new HMRC rules require online platforms to submit an annual report detailing the names and sales volumes of individual sellers trading on their platform. In practice, the new tax laws mean that HMRC will now receive this information automatically rather than requesting it manually.

It’s not just domestic either, per the new OECD (The Organization for Economic Cooperation and Development) rules, HMRC can also collect this data from non-UK platforms, such as Amazon, TikTok and Etsy. In short, this is an international crackdown. The UK tax authority has invested an initial £36.9m in developing the new system and hired a team of 24 full-time staff to put it into action.

Who does this impact?

In a sense these changes are also HRMC’s new rules for self-employment because they target sellers on almost all online platforms, including those focused on the sale of products, food delivery, taxi hire, re-selling of clothing and the short-term rental of properties. Meaning websites such as Amazon, eBay, Vinted, Uber, Gumtree, Deliveroo, Airbnb and various freelancer sites will have to annually report their sellers’ information. 

One odd caveat is that they aren’t required to report individuals who’ve made less than 30 sales, regardless of total revenue.

Although these platforms have a new reporting responsibility, it should be noted that the basic tax responsibilities for individual sellers remains the same. 

How much of my information will be shared with HMRC?

HMRC has stated that platforms need to keep and report the following records in respect of each seller:

• Name
• Address
• Date of Birth (if the seller is an individual)
• UTR (Unique Taxpayer Reference Number)/VAT number (or the equivalent if outside UK)
• Company number (if the seller is a legal entity)
• Where the service relates to immoveable property: the address of each property (Exclusions for very large sellers with >2,000 transactions per year)

When will my information be shared with HMRC?

The new tax rules specify that the deadline for platforms to report this information to HMRC is 31 January of the following year. For example, they are required to report this information for 2024 by 31 January 2025.

Failure to report by this deadline could see platforms pay penalties of £5,000 plus £600 per day if it remains unreported after an assessment is made. Therefore we expect marketplaces to be incredibly vigilant in enforcing these regulations.

When do I need to worry?

According to HMRC, the primary goal is to target sellers who are using these platforms to avoid paying tax. In particular those earning more than the Tax-free trading allowance of £1,000 per tax year.

The Trading Allowance allows you to earn up to £1,000 a year through self-employment. If you earn anything over this threshold, you’re required to register as self-employed and report your earnings to HMRC via a self assessment tax return. The amount exceeding £1,000 is liable to tax.

However, it is worth noting that if you want to claim the £1,000 trading allowance, then you cannot reclaim any other expenditure. So if your expenditure is greater than £1,000, you are better off preparing your books with a complete profit/loss, as you will be able to claim more expenses without the trading allowance.

What if I’m simply selling unwanted items online? If you’re simply clearing out old clothes or other unwanted items, you would not need to register, as this is not classified as a trading activity. However, per these new tax laws, if you are buying goods with the intention of reselling them, then you must register once your total income exceeds £1,000 in a tax year.

Is the threshold based on revenue or profit?

Importantly, that £1,000 threshold (tax-free trading allowance) is based on revenue. That is revenue before deducting any expenses.

In effect, you may pass the threshold and be required to report your self-employed earnings, but when doing so, you can deduct the costs of running your self-employed business as “allowable expenses.” Deducting the allowable expenses from your revenue will reduce your profits and resultant tax bill.

It’s worth knowing that once you pass the £1,000 threshold, you have 2 options when it comes to your self assessment tax return. You can:

• Claim your allowable expenses, or
• Use your £1,000 trading allowance against your tax bill

Most will choose whichever figure is higher to reduce their tax bill as much as possible.

Should I register if I’m self-employed but below the trading allowance?

If your self-employed income is less than £1,000 in the tax year then there’s no need to register as self-employed and submit a self-assessment tax return. 

In the case where you’ve made more than 30 sales (transactions) via an online platform in the tax year, your information will be reported to HMRC. Nonetheless, it is the total income that is the decider. That means you aren’t required to register if your income is below the £1,000 threshold. 

How can I reduce my self-employed tax bill?

The key to this is good bookkeeping. This will allow you to keep tabs on your costs which may well be, you guessed it, “allowable expenses”. The higher the total amount of your allowable expenses, the more you’ll be able to deduct from your year-end revenue, resulting in a lower amount of profit, thereby reducing your tax bill.

If you haven’t already, the best time to start bookkeeping is today. There are clever, cloud-based tools such as Dext (formerly known as Receipt Bank) which will help you effortlessly capture and store receipts for this purpose. You can also learn about the most tax efficient directors salary and how to best pay yourself on our blog. This is exactly what we do for hundreds of our clients. If you want to save your time with the added confidence of keeping your business compliant, get in touch with us today.

Last word

If you’re selling via online platforms, take heed of the new HRMC rules and assess whether your self-employed income exceeds the £1,000 threshold in the tax year. If it does, register for self-assessment with HMRC. If it doesn’t, be mindful of your long-term plan, capture your expenses and if you want a partner who specialises in this space, get in touch with us today.