Is Tax Due on Online Trading?

In a bid to tighten tax regulations and combat tax evasion, HMRC is implementing measures affecting sellers on platforms such as eBay, Vinted, Airbnb and Etsy.

Most individuals using these sites are often low-income hobby sellers. If their turnover from these websites is under £1,000 (and they have no other source of self employment income) there will be no need to report anything to HMRC, unless they are already in self-assessment. In either instance no tax will be payable. This is because each individual is entitled to a tax free trading allowance of up to £1,000 per tax year.

Currently, individuals generating income exceeding £1,000 annually through online side hustles must register as self employed and submit a self assessment tax return. While those earning below this threshold are often exempt from filing a tax return, it is recommended that they maintain records in case of enquiries.

Online platforms are mandated to report seller information to HMRC, with the first reports expected at the end of January 2025. As a result, sellers are advised to stay informed and comply with tax regulations to avoid potential penalties.

Am I Trading?

If an individual is selling personal goods online from time to time, this is not really trading activity. This is because the goods aren’t being acquired for the purpose of re-selling them and so there is not a profit motive to their activity.

The assets that are being sold are also likely to be deemed to be ‘wasting assets’ and so would not be subject to Capital Gains Tax.

If, in contrast, an individual is producing or acquiring goods to sell online at a profit, then this is likely to be deemed as trading activity because the main purpose of their activity is to make a profit. This will particularly be the case if the activity is done on a regular basis.

While this move will have a wide impact, tax experts at the Low Income Tax Reform Group reassured taxpayers that their obligations have not changed:

“The new rules have caused a great deal of confusion, but they simply mean that HMRC is receiving more information from online platforms than before.

“If you are following existing rules and declaring your income as required, then you don’t need to worry or do anything differently.”

For more information on tax, please call 023 8046 1232, or email Martin Back.