Since the announcement of HMRC’s new reporting rules, outrage has sparked online as many worry that they will be taxed for selling their old unwanted goods such as clothes online.
So what exactly are the new rules and how will they affect online sellers? Let’s find out.
What are the New Online Marketplace Reporting Rules?
Put simply, from 1 January 2024, online marketplaces such as Vinted, Depop, Etsy and eBay will be responsible for collecting data on how much their sellers earn. This also applies to other digital selling platforms that sell services like Airbnb and Uber.
While HMRC has always been able to request this information at random, it is now a legal requirement for digital platforms to record this data as standard, as well as any information which will help them to identify your tax records.
The platforms will finally start reporting this collected data to HMRC from January 2025 and onwards.
Will I Have to Pay Tax on Selling My Old Things Online?
In order to pay tax on any goods or services that you sell online, you either need to be trading or making a capital gain. If you’re someone who only occasionally sells items from your home that you no longer use, such as books or a dress that doesn’t fit anymore, you will unlikely have to pay tax as you will be classed as an ‘occasional’ seller.
What is an Occasional Seller?
You will be classed as an occasional seller if you:
- Have fewer than 30 sales
- Receive no more than €2,000, or just over £1,700 each year.
What is an Online Trader?
While there is no official definition of what a ‘trader’ is, there are ways to work out whether your activity will be classed as trading. The important things to consider are whether you intend to make a profit, and your number of transactions.
For example, if you purchase a hoodie for £60 and resell it for £100 because it is sold out online (but you only do this as a one off), you won’t be considered as an online trader.
However, if you regularly buy and resell clothes and make an income over £1,000 each tax year, HMRC will likely classify you as a trader.
Put simply, if you make a regular income from selling on digital platforms where you consider it a ‘side hustle’, you are likely trading. Thankfully, you aren’t required to register with HMRC or start sending tax returns if the amount you make in a tax year is less than the £1,000 trading allowance.
Will I Need to Pay Capital Gains Tax If I Sell Online?
This depends on what it is you are selling online. Capital Gains Tax is paid on any profit you make on something that has increased in value, so you’ll only be taxed on the gain and not the full amount received.
For example, if you buy a collector’s item for £5,000 and later sell it for £15,000, you’ve made a ‘gain’ of £10,000.
However, some assets are tax free, so you won’t typically pay Capital Gains Tax on personal possessions worth less than £6,000 apart from your car. You are also exempt from paying Capital Gains if the total gains you make are below the CGT tax-free allowance. For 2023/24, the allowance is £6,000 for individuals and £3,000 for trusts.
Will HMRC Be Notified If I Sell My Items Online?
If you sell more than 30 items in one year, HMRC will be notified that you are potentially acting as a trader- however it is unclear whether those rules apply to just one platform or across all digital platforms.
Although HMRC will be notified, it doesn’t necessarily mean that you need to register for Self Assessment. For example, if you sell 40 old t-shirts, then HMRC will be notified that you’ve made more than 30 transactions.
However, if you’ve sold these for £10 each, making £400, you will be below the trading allowance and therefore won’t need to register for Self Assessment.
To be clear, the rules around tax and selling online haven’t actually changed. The only difference is that digital platforms now need to report on sellers who meet a certain criteria. So if you only sell a few bits every now and then, you can continue as normal.
Examples from HMRC
HMRC have included some examples on their website to help explain it better:
HMRC Example 1 – Cash in the Attic
Sally clears out her attic and decides to sell her unwanted items online. This is a one-off activity for Sally, and the items sold are for less or the same as the original purchase price.
As these are her personal possessions, she is unlikely to be trading, but she was able to check the guidance on GOV.UK to find out if she needed to tell HMRC about the income.
Ryans Opinion
The above example would cover a typical person who uses these sites. Whether it’s unused children’s clothes or your old TV/mobile phone, the items were originally personal possessions that you no longer have a use for. The intention for the sale of these items is to free up space and potentially get back some of the money originally spent. These items are often sold for much less that the original purchase price so no profit has been made and therefore no tax liability could arise.
HMRC Example 2 – Clothing reseller
After making some money from selling unwanted clothes, Josh begins to buy items from car boot sales and charity shops which he then sells through online marketplaces, aiming to sell for more than he paid for them.
Josh does this activity consistently, honing his skills of picking up items which he hopes to sell for a profit after fees and postage.
This is likely to be trading, and the profits would be taxable.
Ryans Opinion
Unlike with the first example, there is a clear intent for the person to make a profit on the sale of these items. As they are actively trading, there would be a requirement to declare this income to HMRC. They would need to register for Self-Assessment and report this income on their tax return. The full income would not be taxable, as they would be able to deduct the cost of purchasing the items, plus any associated costs against this. Only the profit made would be subject to tax.
HMRC Example 3 – Selling home-made greeting cards
Gina works full time, and in her spare time she makes greetings cards for her family and friends.
Gina then begins to sell her cards online, and is soon making a profit. With business going well, she also expands the range of items that she sells.
Gina is selling with the intention of making a profit, and she is also organising her activities in a way which commercially-minded traders would do. Therefore, this is likely to be trading, and the profits would be taxable.
Ryans Opinion
Again, unlike with the first example, there is a clear intent for the person to make a profit on the sale of these items. As they are actively trading, there would be a requirement to declare this income to HMRC. They would need to register for Self-Assessment and report this income on their tax return. The full income would not be taxable, as they would be able to deduct the cost of manufacturing the items, plus any associated costs against this. Only the profit made would be subject to tax.
HMRC Example 4 – Importing cameras to sell
Steve imports cameras and accessories online from the Far East and he sells them online making a profit.
Steve is selling with the intention to make a profit, and he sells regularly, so he is likely to be classified as trading.
Ryans Opinion
Again, unlike with the first example, there is a clear intent for the person to make a profit on the sale of these items. As they are actively trading, there would be a requirement to declare this income to HMRC. They would need to register for Self-Assessment and report this income on their tax return. The full income would not be taxable, as they would be able to deduct the cost of purchasing the items, plus any associated costs against this. Only the profit made would be subject to tax.
I Am Classed as an Online Trader, What Do I Need to Do?
If you’re worried that you may be considered as a trader, make sure to keep detailed notes of your earnings and any expenses. Follow our guide to registering for a self assessment.