We’ve all been there; smiling through gritted teeth opening an unwanted Christmas gift while planning to sell it online as soon as possible. But changes to online platforms’ tax reporting requirements mean those unwanted gifts could end up costing you. Paul Robbins, Associate Director of Tax at Croner-I, explains.

“With an increased focus on sustainability and social responsibility, there’s been a huge increase in the number of people buying and selling clothing on digital platforms such as Vinted and eBay in recent years. Whether it’s getting rid of unwanted gifts, an annual wardrobe clear-out or a regular way to make some extra money with a so-called side hustle, millions of people have turned to online selling in recent years. Some have even turned it into a full-time job.

“And this has not gone unnoticed by HMRC.

“New legislation has come into effect requiring digital platforms to report seller data to HMRC so giving the tax authority access to unparalleled information regarding untaxed income.

“From 1 January 2024, digital platforms are required to collect seller data and pass it over to HMRC so it can  match the information against taxpayers’ records to  check everything has been correctly reported on tax returns.

“But it’s not only online sellers who need to take note of these changes; they also affect people renting out properties on Airbnb or similar platforms.

“The first reporting deadline for online platforms is 31 January 2025. There will be hefty fines and penalties for digital platforms that fail to submit reports or submit ‘inaccurate, incomplete, or unverified sellers’ records’ so changes will be required to the way in which online seller information is collected to ensure they meet their reporting obligations.

“Occasional sellers don’t need to worry as much about these changes as those who have made online selling or property rental their full-time occupation. People who make less than “€2,000 (about £1,700) from no more than 30 sales in a reporting period will not have their information automatically provided to HMRC. However, they may still have tax reporting obligations.

“If you make sales of £1,000 or more in a year, you will need to consider whether a tax return is required. Your side hustle could be seen as trading if you have a profit-seeking motive, for example, if you buy items to sell on at a profit, make a significant number of transactions or sell only a certain kind of item. If this is the case, then you will need to file a self-assessment tax return with HMRC and pay income tax and National Insurance contributions accordingly.

“The platforms do have to share the information they collect with sellers as well as HMRC, which should help people get their taxes in order. However, these new rules could bring a lot of new people to the attention of HMRC and could make some taxpayers think twice before having a spring clear out. It will be particularly interesting to see the impact it has on property rental sites, especially the number of people looking to make additional income from renting out spare rooms or second properties.”