HMRC recently announced changes for online selling platforms including Ebay, Depop, Vinted and Airbnb. Cue the concerns of millions, as the platforms’ users fear they could be in for a nasty surprise from the tax man.
So, what’s changing? Will it affect you? And if so, what should you do? Cooper Parry’s Tax team has all the answers below.
WHAT is the ‘side hustle’ tax?
From 1 January 2024, the UK brought in legislation to require these online selling platforms to collect data on sellers, reporting this information to HMRC before 31 January 2025. This change brought the UK in line with the European Union which has implemented these rules since the start of 2023.
The penalties for the selling platforms for not complying with these new rules are strict. So, they’re going to be diligent in their reporting.
HOW DO THESE RULES AFFECT ME?
For the majority of casual users of these sites, the short answer is: they won’t. So, if you’re selling an unwanted Christmas present from your aunt, or recently had a clear out of your children’s wardrobe and wanted to make a bit of cash, nothing will change for you.
These rules are targeted at people trading on these sites as a way of making a living. These traders will make large numbers of sales, intending to make profits which, in turn, are taxable.
By forcing the selling platforms to declare the sale data, it will help HMRC identify these individuals who may previously not have reported this income. They will be required to report this income on a self-assessment tax return, due by 31 January each year.
THAT’S ME – WHAT SHOULD I DO?
If you’re caught by these new rules and haven’t previously submitted tax returns, you’ll first need to register for Self-Assessment. This will inform HMRC of your intention to file a return and they will issue you with a Unique Taxpayer Reference (UTR) number.
Then, make sure you keep accurate records of your income and expenditure related to this trade for the period 6 April – 5 April each year. Qualifying expenses would include product purchases, materials or postage costs. These costs can then be deducted from your total trading income when calculating the profit for the tax year.
If your total expenses are less than £1,000, HMRC permit you to claim the trading allowance of £1,000 instead of actual costs, saving you the administrative burden of keeping records.
HOW CAN COOPER PARRY HELP?
Our team has vast experience advising a range of clients on their tax reporting requirements. If you’re a regular trader on these online platforms and are concerned about what the ‘side hustle’ tax changes might mean for you, or have any other tax or accounting questions, we’d love to chat.
