Selling online – When do you need to tell HMRC?
Earlier this year, there was a lot of buzz about new tax rules supposedly making everyone who sells online report to HMRC and pay tax. Turns out, that's not really the case. The tax rules for online sellers are the same as they've always been. But starting January 1, 2024, digital platforms have to start collecting info on online sellers and their income, and they'll report this to HMRC by January 2025. So, if you've been skipping out on declaring your taxable income, HMRC might find out now.
Taxable Income and Gains
Not everyone selling stuff online needs to pay tax or inform HMRC. You only need to worry if you're trading or making a capital gain. For example, if you're selling old clothes on Vinted for less than what you paid, you don't need to tell HMRC or pay tax on that.
Trading
You're usually considered to be trading if you're selling goods or services for a profit. The usual 'badges of trade' help determine this. If you're trading online, you need to inform HMRC if your gross trading income exceeds £1,000 in the tax year. This £1,000 limit applies to all trading income, not just online sales.
Thanks to the £1,000 trading allowance, if your gross trading income is less than that, you can enjoy it tax-free and don't need to report it. If it's more than £1,000, you can choose to deduct either the trading allowance or your actual expenses—whichever benefits you more. If your actual expenses are less than £1,000, go with the trading allowance to figure out your taxable profit.
Even if you made a loss from selling online and your gross trading income is below £1,000, it might be worth reporting it to use the loss.
When you need to report your online selling income to HMRC, you'll do this on the Self-Employment pages of the Self Assessment tax return. New online sellers who haven't filed a return before need to register for Self Assessment by October 5 after the end of the tax year in which they started their trade (so by October 5, 2024, if they started in the 2023/24 tax year).
Capital Gains
You might also need to inform HMRC if you make a chargeable gain from selling online. But thanks to the chattels rules, a gain on a single chattel only needs to be reported if the proceeds exceed £6,000, and the chattel isn't exempt (like private cars).