No sooner is the country back from the Christmas break and tax is in the headlines again. However, instead of cuts or further reliefs, this time a so-called ‘side hustle’ crackdown is being positioned as the latest attempt by HMRC and the government to claw back revenue generated by people selling and trading through online platforms. These online platforms are now collating more information on their sellers and have to make their first disclosure to HMRC by 31 January 2025.
Much of the reporting – and uproar – so far has focused on those on the more ‘every day’ end of the spectrum; those selling second hand clothes on Vinted or running Etsy shops in their spare time. However, the rules are wide-reaching and high net worth individuals selling or trading luxury goods such as watches, classic cars and fashion items, or operating holiday rental portfolios, could find themselves under the spotlight too. In short, these measures shouldn’t just be the concern of hobby sellers.
Who does this concern?
Firstly, it’s perhaps important to understand some government and HMRC’s logic behind these tax changes and the most important myth to bust is that this is a new tax – it isn’t. It is merely a mechanism by which HMRC can obtain information from online platforms about the activities of its sellers.
Rather than specifically being a targeted crackdown on ‘side hustles’, they form part of a worldwide move to introduce better information sharing between online platforms and regional tax authorities. In general, this is where the world is going: it’s a disclosure exercise aimed at stopping people from hiding income.
Secondly, the rules are more limited than most people think, which is good news for sellers at the lower end of the spectrum and less good news for those trading goods worth tens and hundreds of thousands of pounds.
Platforms including; Etsy, Vinted, eBay, Airbnb and others, must automatically report to HMRC when a seller exceeds 30 transactions each year, and generates a gross income of over around. £1,700. From these thresholds alone, it’s clear that these changes are very much aimed at “professional” sellers, rather than those selling their old clothes or unwanted Christmas presents.
This reporting aspect is separate from whether the seller has to actually pay tax on the money they make. Someone making £5,000 from 50 sales may be reported upon to HMRC but still be exempt from tax if this is their only income, and they can allocate their £12,570 personal allowance against the income. Anyone receiving less than £1,000 during the tax year from online sales will generally be exempt from having to pay tax on that income, even if they sell many items. This is because of the £1,000 “trading allowance”.
How does this affect sellers of luxury goods?
Anyone who has ever dipped their toe into the luxury goods online marketplace will recognise instantly that these thresholds will not be nearly enough to cover the costs of high-end goods.
Anyone who finds their online buying and selling activities falling into the higher end of the spectrum could find themselves the focus of HMRC’s attention. Of course, there will be many buyers and sellers who have already accounted for this and set themselves up as a limited company, or other appropriate business structure, and sought the best tax advice, but for those who haven’t or who’ve chosen to fly under the radar, now is the time to act.
This scrutiny is only going to increase as the months and years go on and the last thing anyone – especially high net worth or ultra-high net worth individuals – wants, is to be the subject of an HMRC enquiry. Anyone who has undergone that process will easily recall how costly, time-consuming, stressful and damaging they can be in the long run. Additionally, once you’ve drawn the attention of HMRC for one reason, it’s difficult to step back out of focus in the future.
What should you consider?
So, what should you do if you find yourself trading high-value goods seriously on online marketplaces?
- Get your tax affairs in order. If your supplementary income is growing, you need to make sure you’re set up in the most tax-efficient way. This could be considering whether you should be operating as a limited company, which could mean income is subject to a lower tax rate.
- Capital gains tax should be considered for those buying and selling high-value goods as investment pieces, such as antique furniture or fine art. For example, a painting bought for £50,000 and sold for £250,000 through an online platform is much more likely to be classed as a capital gain, rather than a trade, making it subject to capital gains tax (the annual exemption of £6,000 may cover smaller gains).
- VAT is another consideration and anyone selling over £85,000 worth of goods or services each year must consider whether they need to register for VAT, charge it on the sales they make and then pay it back to HMRC. Failure to deal with VAT appropriately could not only mean HMRC issue penalties, but could also mean you end up paying over some of the receipts you thought were yours to HMRC to account for the VAT.
What about outside the UK?
The changes in the headlines this week aren’t limited to the UK, either. The move towards information sharing is in place across large parts of the world and is ultimately happening on these shores because the country has signed up to new rules from the Organisation of Economic Co-operation and Development (OECD), an intergovernmental economy and trade organisation. This means foreign rental property portfolios are also included. Someone who may own and rent out several high-value chalets in the French Alps, for example, shouldn’t think themselves immune.
For example, a French online platform used to handle bookings may also be subject to similar reporting requirements as UK counterparts and will inform the French tax authorities, who will in turn flag any applicable income to HMRC. In short, the days of flying under the radar are nearly behind us.
Information sharing and the availability of data from online platforms means it is easier than ever for HMRC to scrutinise tax affairs. Nobody wants that, and anyone selling high-value goods online should make sure that their affairs are in order. However, if one spends their sale proceeds, an HMRC enquiry is the perfect way to take the shine off anything, irrespective of how rare or expensive it may be.
Here are a few questions that are often asked:
What is a side hustle?
A side hustle is a way of earning extra money outside your main job, usually by doing something that you enjoy or are good at. Some examples of side hustles are freelancing, tutoring, blogging, pet sitting, and selling online. A side hustle can give you more flexibility, financial security, and personal satisfaction.
What are some side hustle ideas?
There are many side hustles but to name a few: Blogging, Freelance Content Writing, Pet Sitting, Childcare, Personal Assistance, Online Courses & Coaching, creating a YouTube Channel, Ecommerce Seller, Print On Demand or, creating a Podcast.
Get In Touch
Julia provides bespoke tax advice to a wide range of clients, including businesses and their stakeholders, real estate owners, trustees in both the UK and offshore, and high net worth individuals. She advises clients that are both UK and internationally based and has extensive cross-border tax experience. Having worked across the accountancy and legal sectors, Julia brings a distinctive insight to tax advice and planning, and approaches matters in a pragmatic and commercial manner. Julia has been named as “top recommended” in the Spear’s ranking of the best accountants and tax
How We Can Help
Personal Tax Planning
From drafting your will to advising you how to structure your finances in the most tax efficient way, we aim to be your personal tax partner for life, ensuring we can design a plan that is exactly right for you and your family to protect your personal wealth.
Business Succession Planning
No matter whether you’re a sole trader, shareholder or owner of a family business, we will help to ensure you have a robust succession plan so you can rest assured that a smooth route to dissolving, selling or continuing your business is in place.
Our Latest Tax Updates
Our experts are here to answer any questions you might have
If you’d like to speak to a member of our team, please fill out the enquiry form. We will aim to reply to your query within 2 hours
Need to talk to someone sooner? You can call use at the number below