SELLING THOSE UNWANTED CHRISTMAS PRESENTS? WATCH OUT FOR TAX TRAP
Digital platforms such as eBay, Vinted, and Airbnb will be mandated to disclose seller data to HMRC starting January, granting the tax authority unprecedented access to information.
Are you among the countless individuals in the UK engaged in selling second-hand clothing on digital platforms? Whether you've succumbed to the Marie Kondo trend to simplify and detoxify your wardrobe or have a side gig on platforms like Vinted, Vestiaire Collective, eBay, or Etsy, HMRC is eager to scrutinize potential untaxed income.
With over 8 million registered sellers in the UK, Vinted has become a full-time pursuit for some, and thanks to enhanced information powers, HMRC will gain insights into this income.
Starting January 1, 2024, digital platforms must begin collecting seller data and transmit it to HMRC for cross-referencing with taxpayers' records to ensure accurate reporting on tax returns.
These measures extend to those leasing properties on platforms like Airbnb and individuals offering services online, cautioning these platforms to prepare for potential HMRC scrutiny.
The initial reporting deadline for online platforms is January 31, 2025. To comply, platforms must adopt new methods of gathering seller information, allowing HMRC to verify it against taxpayers' records. Failure to submit reports or providing 'inaccurate, incomplete, unverified sellers' records' may result in substantial fines and penalties, motivating platforms to fulfill their reporting obligations.
Occasional sellers earning less than £1,700 from fewer than 30 sales in a reporting period are exempt from reporting to HMRC. However, this exemption does not absolve them of tax reporting responsibilities.
Depending on factors such as a profit-seeking motive or the nature and volume of transactions, a side hustle could be classified as trading, necessitating a self-assessment tax return and payment of income tax and National Insurance contributions. Sales exceeding £1,000 in a year may trigger the need for a tax return.
Fortunately, platforms must share the collected information with both HMRC and sellers, facilitating accurate reporting by taxpayers. However, this initiative may bring previously unaware individuals within HMRC's purview, prompting some to reconsider their wardrobe decluttering efforts.
With the deadline rapidly approaching, digital platforms must prepare to commence information collection in the New Year. Simultaneously, HMRC should take proactive steps to ensure sellers are aware of potential tax implications and provide appropriate education.
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