E-Commerce Revenue Transparency: HMRC Demands Reporting of User Earnings

January 19, 2024

The development of online marketplaces in the UK is forcing regulators to pay more attention to them. The revenue transparency of e-platforms is important to both regulators and platform users, as it ensures legal standing and customer trust. Now, new rules are being put in place to guarantee this transparency. This article explains why anyone selling goods or services on platforms like Etsy, Amazon, eBay, or Vinted will have to report their earnings to HMRC

HMRC Requires Reporting of User Earnings

People who resell second-hand items through e-commerce platforms will come under renewed scrutiny from the tax authorities. The same also applies to platforms that allow people to rent out their property, for example, Airbnb. The new policy aims to provide tax revenue from income from side financial gain sources.

From the 1st of January 2024, HMRC will require online marketplaces to collect information on how much their users earn. People who earn more than £1,000 a year will be regarded as self-employed and will have to file a return with the UK tax authority. If the side hustle income is less than that sum, it doesn’t need to be reported to the HMRC, and taxes don’t need to be paid.

Countless merchants who have never declared their income from selling goods or services on digital platforms could soon find themselves on HMRC’s radar. This is incredibly important because they could face hefty bills or even fines if they fail to comply with the law.

Regulatory Changes

As reported by Dawn Register, head of tax dispute resolution at BDO, HMRC was already able to request information from UK digital platforms if it was required and on an ad hoc basis. However, the new rules, which come into force in January 2024, mean that this information will start to be delivered automatically and on a global scale.

Platforms in all countries that have signed up to rules imposed by the OECD will collect information on sellers (who are residents of the UK) and pass it on to HM Revenue and Customs. According to Register, this means that if you rent out a house or flat abroad through a website based outside the UK, the data about your income could still be transferred to the UK authorities.

To comply with the new regulations, digital platforms that allow users to sell goods have to share financial details with HMRC. Among the details that will be handed over are the number and value of transactions, names, addresses, and dates of birth, as well as information about users’ bank accounts. This prevents sellers from being reluctant to reveal their source of income. If an e-commerce platform fails to comply, it will be fined.

More Data on Regulatory Changes

Before this requirement was introduced, HMRC could have obtained this information on request. An HMRC spokesperson commented that the new rules will make it easier for sellers to comply with the rules and help authorities identify and stop tax evasion if they violate them.

The policy follows the UK’s agreement with an OECD initiative to encourage tax authorities to share data with international counterparts. The spokesperson added that implementing the OECD rules will enable HMRC to share information quickly and efficiently with other tax authorities and access data from platforms outside the UK.

Smaller websites that allow the sale of goods, contract-work sites, sites that offer short-term property rentals, and services such as taxi driving, food delivery, childcare, and plumbing will also be affected. If a person uses Airbnb or a similar platform to provide accommodation in one of the rooms in their home, it is possible to earn up to £7,500 a year tax-free.

How Could This Impact You?

For people who already declare their income and pay the tax that is due, little will change. There is a possibility that those who do not pay tax could be subject to claims. However, those who sell things as a hobby and make a profit of less than £1,000 (the trading allowance) will not feel regulatory changes.

Christine Cairns, a personal tax partner at PwC, said that the £1,000 threshold is deliberately set low to cover only irregular sellers. HMRC would not expect people in this situation to complete an annual tax return, although if they are issued with a tax return, taxpayers should always complete and submit it. Additionally, Cairns states that platforms should provide sellers with copies of the data shared with HMRC to help them prepare tax returns.

If people earn more than £1,000 but do not file a tax return, they may receive letters from HMRC asking them to voluntarily report undeclared income. Some of the more egregious cases could lead to HMRC audits.

Why Is This Happening?

The UK gig economy has changed much faster than the policies of the tax authorities, but they are now catching up fast and are keen to make reporting transparent. If someone is looking to hide income from marketplace sales, the tax authorities are now making life very difficult for them. 

According to Miruna Constantin, tax manager at RSM UK, this came about due to changes in the global economy, with more people working from home through freelancing websites and selling second-hand goods.

It can be assumed that in the absence of any precautions, it is quite easy for governments to miss out on tax due on income earned on freelancing or resale sites. This ties in with the trend towards eco-friendly lifestyles and reuse, among other things. The regulation came about to prevent the black economy and tax evasion.

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Who Needs to Report Earnings to HMRC Under the New E-Commerce Regulations?

Any individual or business earning over £1,000 annually through online marketplaces such as Amazon, eBay, Etsy, and Airbnb will need to report their earnings to HMRC.

What Kind of Information Will E-Commerce Platforms Need to Report to HMRC?

E-commerce platforms will be required to report the number and value of transactions, along with personal details of the sellers such as names, addresses, dates of birth, and bank account information.

What Should I Do If I Receive a Letter from HMRC Regarding Underreported Income?

If you receive a communication from HMRC regarding underreported income, it's advisable to consult with a tax professional and respond promptly to avoid potential fines or penalties.

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