Under new rules that came in last year, digital platforms are legally obliged to collect information on the trading activities of sellers using their platforms, and to report such activities direct to HMRC. HMRC estimates that up to five million individuals could be affected by the rules, ranging from individuals selling a small number of items online, to operators making sizeable profits in their online businesses.
A digital platform is any software, including mobile apps and websites, which allows an operator to offer goods and services to users. Examples include eBay, Vinted, Etsy, YouTube, Amazon, OnlyFans, Freelancer, Uber, and Airbnb.
What do the new rules mean for online sellers?
The Organisation for Economic Development (OECD) model rules started to apply from 1 January 2024. They require digital platforms to collect certain data, including sales revenue, on the operators who use their platforms to either:
- sell goods or services online,
- create online content, or
- to rent out property, and then to report that data direct to HMRC each year.
The first report to be made to HMRC covers trading activities in the 12 months from 1 January to 31 December 2024 and had to be submitted to HMRC by 31 January 2025. There are certain categories of sellers that digital platforms are not required to report on, including sellers who have sold fewer than 30 items or who have received less than £1,700 in the reportable 12-month period. Exclusions also apply for certain sellers, including listed companies and large-scale sellers.
Digital platforms have to provide online sellers with a copy of the report they send to HMRC, so sellers will know what information HMRC has about their online earnings. However, confusion is likely to arise for online sellers because they will receive reports based on sales for the previous calendar year January to December, whereas the tax year runs from 6 April to 5 April. Further, reports will likely be sent out close to the 31 January deadline for self-assessment tax returns.
It is important to note that the tax position on income from online selling, whether as an online trader or as an individual with a ‘side hustle’, has not changed. So, what are the tax implications when selling online?
Small online sales v ‘trading’
If you simply sell a small number of personal possessions online (e.g. on sites such as eBay and Vinted) or carry out paid services through a digital platform, and your income is less than £1,000, you will not have to pay Income Tax on the monies received. This is known as the £1,000 trading allowance or the ‘hobby allowance’. If, however, your activity is deemed to be “trading activity”, you may be liable for Income Tax.
Capital Gains Tax may come into play if selling a more valuable item. It will be payable if you make a profit (i.e. a gain) of more than £6,000 on the sale of any individual item (and this can include more than one item if they are sold as part of a set, such as a matching pair of ornaments).
What is considered to be “trading”?
You may be deemed to be “trading” (and may need to report to HMRC the income you receive) if you:
- Buy goods (including from car boot sales and charity shops) with the intention to resell for a profit and then sell them on an online marketplace.
- Make goods (even if as part of a hobby) with the intention to sell for a profit and then sell them on an online marketplace.
- Upcycle second-hand furniture with the intention to sell and then sell it on an online marketplace.
- Import goods from abroad with the intention to sell and then sell them on an online marketplace.
- Perform services for others (such as dog walking, gardening, babysitting, delivering items) through an online platform and receive payment for those services.
- Create content online (e.g. podcasts, social media influencing) which you promote online and then receive money (or gifts) through promoting that content online.
- Rent out land or property (including a room in your main home or all of your home or your driveway) through an online platform and receive payment.
What is the tax position?
The general position is that income tax will be payable on any income that has not already been taxed. Most people have a personal income tax allowance of £12,750 and so will not pay any Income Tax on earnings below that sum. Income above that figure will be subject to tax at the current applicable Income Tax rates.
If you are classed as a “trader”, you will be able to deduct any expenses from your income and then declare and pay Income Tax on the profits through the self-assessment route. Alternatively to deducting expenses, you can claim the trading allowance of £1,000 (you cannot do both).
What can online sellers do now?
Online sellers should be aware that their trading activities during 2025 will be reportable to HMRC by 31 January 2026. If you are unsure whether your online activity amounts to ‘trading activity’, you should seek advice now.
Online sellers should also keep good records of all income and deductible expenses. If you fall under self-assessment rules, you will need to register for self-assessment and complete a self-assessment tax return before the deadline of 31 January, to avoid penalties.
If you have questions or concerns about tax or HMRC investigations, please contact our Tax team.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.