Do you have a side hustle going online? Maybe you are selling some amazing crafts on Etsy, renting out rooms on Airbnb, or perhaps earning from your skills on Upwork. Making extra money online has its own perks. However, with this opportunity comes tax responsibility!
From 1 January 2024, HMRC has stepped up its game with its income reporting. Digital platforms operating in the UK, like eBay, Etsy, Vinted, Airbnb, Uber, etc., are required to collect and report seller data directly to HMRC.
The first reports (covering all of 2024) have already been sent on 31 January 2025. With this ongoing data sharing, HMRC can now spot anyone not reporting their full income. Now is a good time to make sure your taxes are in order!
What kind of information are platforms reporting?
HMRC now has access to the following:
- Your full name and address
- Date of birth
- National Insurance Number (or other tax identification)
- Total gross income received from sales/services
- Number of transactions
- Any fees, commissions, or taxes withheld by the platform
- Bank account details used for payments
The £1,000 Trading Allowance: Your Tax-Free Buffer
Good news! You get a £1,000 trading allowance each tax year (6 April to 5 April the following year). This allowance covers small amounts of casual or miscellaneous income from trading activities.
Here’s how it works:
- If your total gross income from all trading activities is £1,000 or less in a tax year: You don’t need to tell HMRC about this income, and you won’t pay tax on it. This is known as ‘full relief’.
- If your total gross income from trading activities is more than £1,000 in a tax year: You must register for Self Assessment and declare your income to HMRC. You can then choose to either:
- Deduct your actual business expenses from your gross income to arrive at your taxable profit.
- Deduct the £1,000 trading allowance from your gross income instead of your actual expenses (if your expenses are less than £1,000). This is known as ‘partial relief’.
Important Note: The trading allowance applies to income from trading activities, not necessarily selling off personal possessions you no longer want (unless you bought them with the intention of reselling for profit).
Why This Matters for You
Increased Scrutiny
HMRC is actively sending “nudge letters” to individuals they believe have undeclared online income. These letters are specifically targeting those with over 30 transactions or earnings exceeding £2,000 in a tax year (even if below the £1,000 allowance, as they are looking for signs of trading). Ignoring these letters can lead to a formal investigation and higher penalties.
Avoid Penalties
HMRC’s penalties for undeclared income can range from 30% to a staggering 200% of the tax owed, depending on whether the error was careless, deliberate, or deliberate and concealed.
Need to declare past income? Use HMRC’s Digital Disclosure Service (DDS). Our guide explains how to do it and reduce penalties.
It is always better to be proactive than to wait for them to contact you, with the data they already hold.
What Should You Do Next?
- Track Your Income: Keep records of all income and expenses related to your online activities, even if your income is below the £1,000 allowance.
- Determine if You Are Trading: HMRC applies “badges of trade” to determine if an activity is a hobby or a taxable trade. Generally, if you are consistently buying or making items with the intention of selling them for a profit, or providing regular services, it is considered a trade.
- Digital Income Reporting for Landlords: For those earning income from property through platforms like Airbnb, it’s also important to be aware of the upcoming Making Tax Digital for Landlords requirements, which will mandate digital record-keeping and quarterly updates.
- Register for Self-Assessment: Does your gross income exceed £1,000 a year? Then you must register for Self-Assessment by 5 October following the end of that tax year.
- Seek Professional Advice: Start by learning how various online activities are taxed. If you are unsure about your specific situation, consult with our qualified tax advisors.
Feeling a bit unsure about your online earnings and HMRC? Let Legend Financial’s experts bring you peace of mind.
