Since the announcement of HMRC’s new reporting rules, outrage has sparked online as many worry that they will be taxed for selling their old unwanted goods such as clothes online.
So what exactly are the new rules and how will they affect online sellers? Let’s find out.
What are the New Online Marketplace Reporting Rules?
Put simply, from 1 January 2024, online marketplaces such as Vinted, Depop, Etsy and eBay will be responsible for collecting data on how much their sellers earn.
This also applies to other digital selling platforms that sell services like Airbnb and Uber.
While HMRC has always been able to request this information at random, it is now a legal requirement for digital platforms to record this data as standard, as well as any information which will help them to identify your tax records.
The platforms will finally start reporting this collected data to HMRC from January 2025 and onwards.
Will I Have to Pay Tax on Selling My Old Things Online?
In order to pay tax on any goods or services that you sell online, you either need to be trading or making a capital gain.
If you’re someone who only occasionally sells items from your home that you no longer use, such as books or a dress that doesn’t fit anymore, you will unlikely have to pay tax as you will be classed as an ‘occasional’ seller.
What is an Occasional Seller?
You will be classed as an occasional seller if you:
▪︎Have fewer than 30 sales
▪︎Receive no more than €2,000, or just over £1,700 each year.
What is an Online Trader?
While there is no official definition of what a ‘trader’ is, there are ways to work out whether your activity will be classed as trading. The important things to consider are whether you intend to make a profit, and your number of transactions.
For example, if you purchase a hoodie for £60 and resell it for £100 because it is sold out online (but you only do this as a one off), you won’t be considered as an online trader.
However, if you regularly buy and resell clothes and make an income over £1,000 each tax year, HMRC will likely classify you as a trader.
Put simply, if you make a regular income from selling on digital platforms where you consider it a ‘side hustle’, you are likely trading. Thankfully, you aren’t required to register with HMRC or start sending tax returns if the amount you make in a tax year is less than the £1,000 trading allowance.
Will I Need to Pay Capital Gains Tax If I Sell Online?
This depends on what it is you are selling online.
Capital Gains Tax is paid on any profit you make on something that has increased in value, so you’ll only be taxed on the gain and not the full amount received.
For example, if you buy a collector’s item for £5,000 and later sell it for £15,000, you’ve made a ‘gain’ of £10,000.
However, some assets are tax free, so you won’t typically pay Capital Gains Tax on personal possessions worth less than £6,000 apart from your car.
You are also exempt from paying Capital Gains if the total gains you make are below the CGT tax-free allowance. For 2023/24, the allowance is £6,000 for individuals and £3,000 for trusts.
Will HMRC Be Notified If I Sell My Items Online?
If you sell more than 30 items in one year, HMRC will be notified that you are potentially acting as a trader- however it is unclear whether those rules apply to just one platform or across all digital platforms.
Although HMRC will be notified, it doesn’t necessarily mean that you need to register for Self Assessment. For example, if you sell 40 old t-shirts, then HMRC will be notified that you’ve made more than 30 transactions.However, if you’ve sold these for £10 each, making £400, you will be below the trading allowance and therefore won’t need to register for Self Assessment.
To be clear, the rules around tax and selling online haven’t actually changed. The only difference is that digital platforms now need to report on sellers who meet a certain criteria. So if you only sell a few bits every now and then, you can continue as normal.
I Am Classed as an Online Trader, What Do I Need to Do?
If you’re worried that you may be considered as a trader, make sure to keep detailed notes of your earnings and any expenses and speak to your accountant for any help you made need. We are happy to help 01728 687000.