Tax services

Understanding HMRC’s exchange of information with online marketplaces

In recent months, there has been a flurry of media reports and discussions regarding HMRC’s exchange of information with popular online marketplaces like eBay, Etsy, Vinted, and others. Many of these reports have caused confusion and concern among individuals who sell second-hand items online. In this article, we aim to provide clarity about what this exchange of information really means for sellers and how it might impact their tax obligations.

3rd May 2024

The basics of HMRC's exchange of information

HMRC’s exchange of information with online marketplaces is part of the government’s broader efforts to combat tax evasion and ensure that all individuals and businesses pay the taxes they owe. These measures are not meant to discourage people from selling their second-hand items but to ensure that taxes are collected appropriately from those who are actively trading.

Who does it affect?

This exchange of information primarily affects individuals or businesses that use online marketplaces to sell items as a regular or primary source of income. If you occasionally sell personal items that you no longer need, such as used clothing or electronics, you are unlikely to be impacted by these measures.

Understanding your tax obligations

Casual sellers

If you occasionally sell personal items or have a clear intention to sell personal items that you no longer need, you are generally not considered a trader or a business for tax purposes. In this case, you don’t need to register for Self-Assessment or pay Income Tax on the sales of your second-hand items.

Regular sellers

If you are actively engaged in buying and selling items with the intention of making a profit, you are considered a trader, and your income from these transactions may be subject to Income Tax. It’s important to keep accurate records of your sales, expenses, and income to comply with tax regulations.

What the exchange of information involves

From 1 January 2024 online marketplaces, like Etsy and eBay, provide HMRC with transaction data for sellers. This data includes the seller’s contact details, sales history, and payment information. HMRC will then use this information to identify individuals or businesses that may have tax obligations related to their online sales.

Final thoughts

In summary, the media reports about HMRC’s exchange of information with online marketplaces may have caused unnecessary anxiety among second-hand sellers. The key takeaway is that these measures are primarily aimed at individuals and businesses actively trading on these platforms and not casual sellers.

This campaign by HMRC is part of a wider series of initiatives known as ‘nudge letters’ which actively seek individuals or businesses who they believe have not declared all their taxable earnings.  If you are aware that you need to make a disclosure of income that has not previously been disclosed, then there are voluntary disclosure opportunities available.  These lower the level of penalties HMRC will charge for any tax that is due, in some cases the penalty can be zero, or suspended for a period of time.

How can Old Mill help?

At Old Mill we have a specialist team who regularly deal with HMRC enquiries and disclosures who would be pleased to discuss any concerns you have.

Contact Chris Watts or click here….