Selling online ? Are you paying correct taxes?
From 1 January 2024, digital platforms are required to collect and report seller information and income to HMRC . These digital platforms must report sellers’ income by January 2025. The changes are an internationally agreed set of rules requiring digital platforms to report certain information to HMRC
What is changing?
Websites will have to collect data about sellers. For individuals, this will be their name, address, date of birth and national insurance number, plus what they have earned and paid in fees on the platform. If a property is being let, they will need its address. This information will not have to be shared with HMRC until the end of January 2025.
Register says other data, such as bank account details, may also be collected and ultimately be shared with tax authorities. When you may need to pay tax for selling goods or services online In order to pay tax on the goods or services you sell online, you either have to be trading or making a capital gain.
If you are just selling some unwanted items that have been laying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax.
If you buy goods for resale, or make goods with the intention of selling them for a profit, then you are likely to be trading and will have to pay tax on your profits.
However, if your total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, you would not be required to inform HMRC nor pay any tax on the profits (this is due to the Trading and Miscellaneous Income Allowance).
The examples below, while not exhaustive, cover a range of common scenarios of selling goods online, and illustrate where tax might need to be paid on any profits made.
Cash in the attic
Sally clears out her attic and decides to sell her unwanted items online. This is a one-off activity for Sally, and the items sold are for less or the same as the original purchase price. As these are her personal possessions she is unlikely to be trading, but she was able to check the guidance on GOV.UK to find out if she needed to tell HMRC about the income.
After making some money from selling unwanted clothes, Josh begins to buy items from car boot sales and charity shops which he then sells through online marketplaces, aiming to sell for more than he paid for them. Josh does this activity consistently, honing his skills of picking up items which he hopes to sell for a profit after fees and postage. This is likely to be trading, and the profits would be taxable.
Here is some examples as explained by HMRC which would help you clear any mis-information available online
Selling home-made greeting cards
Gina works full time, and in her spare time she makes greetings cards for her family and friends. Gina then begins to sell her cards online, and is soon making a profit. With business going well, she also expands the range of items that she sells. Gina is selling with the intention of making a profit, and she is also organising her activities in a way which commercially-minded traders would do. Therefore, this is likely to be trading, and the profits would be taxable.
The model car collector
David collects model cars. He sometimes buys and sells them but also looks for swaps. The swaps are designed to complete sets which David knows will be more valuable as a set than as individuals. When he has a complete set, he offers it for sale, often at a sizeable profit. As David is buying and selling models so he can make a profit, he is is likely to be classified as trading.
Importing cameras to sell
Steve imports cameras and accessories online from the Far East and he sells them online making a profit. Steve is selling with the intention to make a profit, and he sells regularly, so he is likely to be classified as trading.
The online tutor
Avram is studying part time and working in a shop on the days he is not studying. In the evenings he offers language tuition online in exchange for money. He carries out these activities frequently and has several students who are signed up to his regular classes upon which he offers a discount for bulk bookings.
The activity is organised, and Avram promotes his service through word of mouth. He is likely to be trading and any profits he makes would be subject to tax.
If you are selling online and need help in understanding how this will impact you please get in touch with our expert team specialising in to online sellers and taxes. You will be surprised how they will be able to guide you and make this an effortless process.