Online sellers making money from second-hand goods could end up paying tax on their “side-hustle” earnings under a New Year tax clampdown.
From January 1, digital platforms such as eBay, Airbnb, Etsy, Amazon and Vinted must share seller information with HM Revenue & Customs (HMRC) as part of a crackdown, dubbed the side hustle tax.
This will allow tax authorities to detect and tackle tax evasion, while also levelling the playing field with how traditional businesses are treated for tax purposes, according to HMRC.
One seller revealed they were closing their Vinted account as a result of the new tax.
They told a customer: “I’m shutting down my shop now. I’m not sure if you have seen but HMRC are taxing anyone with any sales over £1,000 and its is just not worth the hassle.”
It comes amid a number of tax changes for the start of 2024, including changes to the national insurance rate that employees pay.
The threshold for earnings from so-called online side hustles is set at more than £1,000 a year – above this, online sellers must register as self-employed and file a self-assessment tax return at the end of the financial year.
HMRC was already able to request information from UK-based digital platforms, but Britain has signed up to new rules that came into effect at the start of this year via the Organisation for Economic Cooperation and Development (OECD) allowing it to share information with other tax authorities to access data from platforms based outside the UK.
Online platforms will be required to report seller information directly to HMRC – although not until the end of January 2025.
This will include information such as tax ID, bank account details, as well as the amount and number of transactions made by sellers with sizeable trading activity.
It will apply to digital apps and platforms – including website providers to third-party sellers – and cover the sale of goods and services, such as handmade or second-hand clothes and items, alongside taxi hire, food delivery, freelance work, and the letting of short-term accommodation or driveway parking.
Another New Year tax change is coming on January 6, with the cut to the national insurance contribution (NIC) rate from 12% to 10% for earnings between £12,570 and £50,270.
But self-employed workers will have to wait until April 6 for national insurance cheer, when Class 2 contributions will be axed altogether and their main NIC rate will be cut from 9% to 8%.
The rate change was announced in the Chancellor’s autumn statement and will stay at this new level throughout the 2023/2024 tax year.
From January 1, consumers will also no longer pay VAT on period pants following a two-year campaign, saving up to £2 – or 16% – on average – following Jeremy Hunt’s pledge in his November statement to scrap the tax.
But there are some unwelcome tax changes in the offing for April, when the thresholds for dividend tax and capital gains tax will drop again, while the Government has yet to hint at any end to the freezing of tax thresholds.
Sian Steele, head of tax at Evelyn Partners, said: “The NI cut will bring a bit of New Year cheer for millions at a time when there are many pressures on household incomes.
“But taxpayers should put it in the context of a steady rise in the overall direct tax burden that has been driven by frozen income tax and other tax thresholds and allowances that have fallen in at least real and in some cases nominal terms since 2021-22, and will continue to erode take-home pay and disposable incomes until 2028.”
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