Exclusive
TAXING TIMES
Thousands of eBay and Vinted sellers could face shock tax bill as HMRC cracks down on side hustle income
We explain what to do if you are contacted
THOUSANDS of households are set to receive letters urging them to declare income from online sales up to four years ago - or face a surprise tax bill.
HM Revenue & Customs (HMRC) is in the process of sending letters to around 6,000 people who it believes earned income through online marketplaces and may need to pay tax on it, The Sun has learned.
1
It is understood those being contacted are people who made at least 30 sales and earned more than £2,000 primarily during the 2022/23 tax year, although in some cases in 2021/22.
The campaign is based on data the taxman has received from online marketplaces like Vinted and eBay.
HMRC regularly receives information about transactions and income being generated through these platforms.
The aim of the letters is to warn those individuals that HMRC is aware of their online income and encourage them to disclose it before any further action is taken, or confirm that they don't owe any tax.
READ MORE ON TAX
In an example letter seen by The Sun, the taxman says: "We have information that shows you’ve earned income from online marketplace sales up to the tax year ending 5 April 2023.
"You need to tell us about this income. This is because you may owe tax."
It goes on to say that the recipient needs to declare any income or contact HMRC within 30 days from the date of the letter.
If they fail to do that, the taxman says it will open a compliance check and may charge them penalties. It will then charge daily interest on any late tax payments.
Most read in Money
";The sooner you pay any tax you owe, the less interest you’ll have to pay," the letters say.
It forms part of ongoing work by the taxman to ensure everyone is paying what they owe.
Farmers hit back at Rachel Reeves' Inheritance tax rise
An HMRC spokesperson said: “We receive regular information from online marketplaces and are contacting sellers who have not declared their income to ensure they pay the correct tax.
“Our campaign helps those with income from side hustles understand their tax obligations and avoid any surprises.”
Why is the taxman sending letters out?
The round of letters come amid a rise in sales on secondhand marketplaces like eBay over the past few years.
Vinted, eBay and Depop have all moved away from charging sellers to list items on their platforms recently, meaning it is free to sell online.
This has led to a huge increase in the volume of transactions through these platforms.
Vinted more than doubled its user base between 2020 and 2023, rising from one million to 2.5million users.
Meanwhile, sales on the site jumped by 61% last year to £513million.
But there are concerns that many sellers may not realise they have to pay tax on this income if they earn over a certain threshold.
Joanne Walker, technical officer for the The Chartered Institute of Taxation's Low Incomes Tax Reform Group, said: “These nudge letters are part of a wider HMRC campaign to encourage online marketplace sellers to take notice of their tax obligations.
"In particular, these letters are targeting people who HMRC think have already failed to comply with the tax rules for previous tax years."
On January 1, 2024, new rules known as OECD Reporting Rules came in that meant digital platforms would need to collect information about sellers of goods and services and report this to HMRC.
However, it is understood the letters being sent out this month are a separate initiative.
What do I do if I receive a letter?
If you receive a letter from HMRC about past income, make sure to respond as soon as possible to avoid any penalties.
If you think you do have income to declare, go to gov.uk and search "Tell HMRC about underpaid tax from previous years", then follow the instructions.
Alternatively, you can call HMRC on 0300 123 0998 and quote the reference number on your letter.
HMRC will then send you a payment reference number to pay what you owe.
If you don't have any income to declare, you still need to let HMRC know either by email or over the phone.
Bear in mind that if you do owe tax and don't tell HMRC on time, you could be charged penalties and could have to pay extra interest.
Make sure to let HMRC know if you have any personal circumstances that make it difficult for you to deal with the issue right now, as it should make allowances to help you cope.
Ms Walker, of the Chartered Institute of Taxation, added: "It is important that anyone who receives a letter takes action and checks their tax position carefully.
"It is possible that some people who have received one of these letters will not have any income to declare.
"Even where this is the case, they should still contact HMRC, in line with the instructions on the letter, to confirm their position and explain why they do not have any income to declare.
“In any event, the most important thing is to take action and not simply ignore the letter.”
However, in future you may not have to file a tax return if you don’t owe any tax under Treasury plans, The Sun revealed this week.
Why might I have to pay tax on online sales?
Everyone has a "trading allowance" of £1,000.
This means you can earn up to that amount from side hustles or sales without paying tax.
Some examples include selling items on eBay, renting out a property, washing cars or babysitting.
If you have property income and trading income, you can claim a £1,000 allowance for both.
However, anything earned over this amount must be taxed at your marginal rate.
READ MORE SUN STORIES
You will need to pay this by completing a self-assessment tax return.
Make sure to keep a record of what you earn and any expenses you have to pay.
Do you need to pay tax on items sold on Vinted?
QUICK facts on tax from the team at Vinted...
- The only time that an item might be taxable is if it sells for more than £6,000 and there is profit (sells for more than you paid for it). Even then, you can use your capital gains tax-free allowance of £3,000 to offset it.
- Generally, only business sellers trading for profit (buying goods with the purpose of selling for more than they paid for them) might need to pay tax. Business sellers who trade for profit can use a tax-free allowance of £1,000, which has been in place since 2017.
- More information here:
Topics