HMRC is getting cannier at detecting and penalising people who make extra income but don’t declare it.
And in 2024 they are set to clamp down on sellers flogging their pre-loved items through sites such as Etsy, Depop, eBay and Vinted.
Will this impact you?
Big brother is watching
A HMRC spokesperson recently said: ‘For people selling personal possessions online, absolutely nothing has changed.
‘The reason we’re asking digital platforms to share information with us is to ensure businesses operating via these platforms pay the correct amount of tax, and do not have an unfair tax advantage over high street and other traditional businesses.’
A bit on the side
- If your trading income does not exceed £1,000 in the tax year, the trading allowance exempts it from tax. This means that you don’t need to report anything to HMRC.
- However if your income exceeds £1,000 then yes, you will need to include this in your self-assessment tax return.
What counts as trading income?
HMRC considers you to be trading if you are carrying out business activities, in a trade or profession, or buying and selling goods or services with a view to making a profit or surplus.
Remember, just because your business does not make a profit doesn’t mean you aren’t trading!
Tip. If you are trading and make a loss it may be possible to use this to reduce your tax bill on your other income.
Examples.
1. Emma earns £60,000 per annum and sells handmade jumpers on Etsy for which she received £870 in 2022/23. She also lets out her driveway for £800.
Emma does not need to report either of these minor income sources on her tax return as they fall beneath the £1,000 trading allowance.
2. John also earns £60,000 per annum and sells vintage toys on eBay. In 2022/23 he received £1,400, his trading costs are just £100.
Instead of paying tax on the actual profit of £1,300, John can just his trading allowance to reduce the profit to just £400 (£1,300 – £1,000). This will be declared on his self-assessment tax return.
3. Susan makes a living from her Vinted account. She travels around car boot sales and charity shops looking for bargains, which she then cleans and posts online for sale. Each year she averages trading income of £12,000 and has typical business costs.
Susan will need to keep book-keeping records and declare her income and expenditure in her self-assessment tax return.
Having a clear out?
Finally, don’t worry if you sell your unwanted personal possessions online, this isn’t taxable as trading income.
It could become liable to capital gains tax (CGT) if sold for more than you paid for it and where the gain exceeds your capital gain threshold (in 2024/25 this is £3,000). But generally this will only relate to high end items such as jewellery or art work.