Tax on your side hustle?

You may have heard of tax changes to online platforms and be worried about what it all means for you. Social media is full of misinformation and panic. What are the changes? How do they impact users of these platforms? What should you do now?

We have written about the new rules before in our articles on DAC 7 which is the shorthand name for the 7th European Directive on Administrative Co-operation. The European rule was introduced on 22 March 2021. It is getting a lot of attention now because the UK has brought in rules along the same lines as DAC7. From 1 January 2024, online platforms that are caught by the rules have to collect certain data on their users and supply that information to HMRC on or before 31 January 2025. So sellers from now on may have information on their sales collated and provided to HM Revenue & Customs ("HMRC"). A failure by the online platform to comply results in penalties for the platform.

Importantly, this is about information provision. It does not change the underlying rules. So if I sell my unwanted Christmas present on a platform (and to clarify for my friends and family, this is of course only hypothetical as I gratefully retain all gifts), then I am probably not at risk of paying tax on the money I receive. However, if what I do means that I am carrying on a trade or business, then, just as before these reporting rules were introduced, I need to register for self-assessment and make sure I report the income I have made from my business (and claim my related business expenses), paying tax on my net taxable profit.  

I also need to be mindful that if I make sales in the course of my business that are over the VAT threshold (currently £85,000 in the last 12-month period or anticipated in the next 30 days), then I have to register for UK VAT and charge and pay HMRC VAT. If, in the course of my business, I sell overseas, I may have obligations to register for and pay for overseas VAT, sales tax or goods and services tax and consider customs duties and whether I need to obtain an EORI number. 

If I am not sure whether I am carrying on a trade or business or not, a good place to start is to seek professional advice, but if I don't want to incur the costs of asking a professional there's HMRC's business income manual. This is guidance published by HMRC, it isn't the law, but it is a helpful place to look. For example, HMRC publishes a helpful summary of the “badges of trade” which are the indicators of whether something is trading or not.

So if I sell-on my rash January sales purchase of a green handbag, I can probably breathe easy, not because it's green, but because I don't buy and sell handbags regularly and didn't buy it in order to sell it at a profit. HMRC may be provided with my information under these new rules, but I am not carrying on a trade or business (in my handbag sale example anyway). However, those who are should take steps to regularise their tax position with HMRC. The forms are not complex, there are professionals who can help, and the HMRC helplines, whilst they can take a while to get through, are staffed with real people.