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Selling online? You might need to report to HMRC

At the beginning of this year, the government announced a significant change to how individuals can sell products online. For those who are considered to be trading, they now have to report their sales to HMRC, and pay taxes on any profit that they make. 

Selling online, before 1st January 2024

For people looking to supplement their income, or who were just looking to recycle products that they did not want anymore, online marketplaces were ideal. Sellers were able to reach a lot of buyers easily, on applications and websites that were user friendly and simple to get started with.

Prior to the 1st January 2024, those who sold products online using online marketplaces like Ebay and Vinted did not have to pay any tax or report their sales to HMRC. It was understood that income generated from selling products on these online marketplaces would be limited, and as such there would be no need to report these sales.

However, since the widespread use of websites like Ebay, Amazon, and applications like Etsy, many people have been able to turn their side hustles into what are essentially fully fledged businesses. By purchasing and reselling products online, individuals are now able to generate a substantial income.

What happened after the 1st January?

From the 1st January 2024, any and all online marketplaces are obliged to report their users' sales to HMRC. HMRC can then use this data to check that those using these applications and websites are paying the tax that they are required to under UK law.

Some users have received letters from HMRC, requesting that they complete a certificate of tax position. This is a document which HMRC issues when they think there are irregularities in the income that a person has generated and/or the amount of income tax a person is paying.

Do I need to pay tax as an online seller?

Typically, you are not required to pay tax when you sell personal possessions, unless you sold a personal possession for more than £6,000. However, for those who are purchasing products with the intention of reselling them, or selling personal possessions regularly and making a profit, you are considered to be trading.

When you are considered to be trading you receive a trading allowance of £1,000, which usually means that you do not need to fill in a self-assessment when your income (excluding expenses) is less than £1,000. This is not always the case; those who already generate income from self-employment may have to pay tax, for example. 

For people whose additional income exceeds £1,000, you will need to complete a self-assessment and report this income to HMRC. This does not definitively mean that you will be required to pay tax on your income; it is to ensure that your tax position is correct and up to date.

Whilst all of this information can feel quite confusing, HMRC have stated that they are not targeting individuals irregularly selling a few personal possessions using an online marketplace. They are trying to ensure that everyone who is trading, or operating an online business, is paying the correct amount of tax.

You can find out more about selling online and paying taxes using the information sheet

This article does not constitute legal advice. Check whether you should be telling HMRC about additional income on the website

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