The digital landscape for online traders is undergoing a shift: there are new tax rules for digital platforms. Whether you're a seasoned seller on popular platforms or setting up a savvy side hustle, understanding the intricacies of these new regulations is key. In this article, we'll break down the key aspects of HMRC’s new tax rules for online trading, providing you with an essential low-down.
Digital platforms: what’s going on?
Beginning in January 2024, HMRC has rolled out new regulations for digital platforms, impacting individuals and businesses engaged in online trading.
Digital platforms are now required to collect, store and report data to HMRC on users and their income – and they must all be complying by January 2025.
Digital platforms are expected to share user data every calendar quarter (every three months) with HMRC.
Why is this happening?
These new rules help HMRC to align with international guidelines and standards – in particular, those laid out by the Organisation for Economic Co-operation and Development (OECD). These rules aim to enhance tax transparency, streamline tax data collection, and ensure fair taxation during today’s worldwide expansion of digital marketplaces.
By automating tax data sharing from these platforms, HMRC’s new approach will combat tax evasion – part of a wider initiative to close the so-called “tax gap”). By automating data sharing, HMRC aims to enhance its ability to detect and tackle tax evasion effectively.
Which platforms will be affected?
According to HMRC, an “online marketplace” refers to websites and apps handling and enabling the sale of goods/services from individuals or businesses to customers.
Therefore, the new regulations cover a wide range of digital platforms, including well-known online marketplaces like eBay, Vinted and Etsy. Food delivery and taxi services such as Deliveroo and Uber are also impacted.
If you're involved in providing goods or services through such marketplaces, or if you are renting out accommodations via platforms like Airbnb, you can expect these rules to apply to you.
What data will HMRC be collecting from online platforms?
Digital platforms will be sharing a range of data, including your name, address, date of birth, National Insurance number, earnings on the platform, and fees paid through the platform.
Your bank account details will also be shared and (if applicable) digital platforms will also need to share your rental property’s address and/or your business registration number.
Platforms will need to maintain a copy of any information sent to HMRC about their users, as well as provide a copy for their users – as a means for both sellers and service providers to keep track of their tax obligations.
Do I need to do anything?
This new regulation is not a new tax, per se: it’s just a new means for HMRC to track your earnings. Therefore, if you’re already disclosing your relevant online income to HMRC, and keeping up to date with tax payments, you probably don’t need to take any new action.
If this is your first time setting up an online side hustle, check out our articles on turning a hobby into income and Income Tax Self Assessment tips to get started!
Do I need to declare my online earnings?
A key question arises: do you need to declare your online income?
The government has made clear that these new regulations are not a crackdown or a new tax on occasional online sales: it is a regulation on trading activity – for example, if you buy and resell (or manufacture and sell) goods for profit.
Most importantly, though, if your total income through online sales and services does not exceed £1,000 (prior to deducting expenses), then you are not expected to report this to HMRC or pay tax (see here and here for details).
Therefore, if you are simply clearing out a few things from the garage or attic, you most likely won’t be affected. If you are intentionally trading or making a capital gain, however, don’t forget to include this in your Income Tax Self Assessment.
Conclusion
In conclusion, HMRC's new tax rules for online platforms represent a significant effort towards transparency and fairness in this ever-expanding digital world. Online traders are encouraged to familiarise themselves with the regulations – but remember that, as long as you continue to file your tax returns (i.e. Income Tax Self Assessment) as required, there should be no need for any radical change.