Received a nudge letter from HMRC?
HMRC is increasing its focus on online sellers, targeting individuals selling on digital platforms such as eBay, AirBnB, Deliveroo, as well as online sites for private tutors, influencers, and more. Many have already received letters about taxable online trading – are you at risk?
- New HMRC Regulations – Digital platforms must now report user earnings – this is not a new ‘side hustle tax’.
- Tax-Free Allowance – Earn up to £1,000 tax-free per year.
- Disclosure Requirements – Some users may need to notify HMRC of historic earnings.
- Penalties for Non-Compliance – There are higher fines if HMRC contact you first.
Don’t wait until HMRC contacts you – take action now. Call our hotline for a free consultation.
Understanding your tax obligations
If you earn more than £1,000 in income that isn’t your normal PAYE employment income within a tax year you should be notifying HMRC and filing self assessment tax returns.
There is no new ‘side hustle tax’ but the new rules mean HMRC will learn of your sources of income if you are selling your goods or services through a digital platform.
The important thing is not to panic, but to seek professional advice if you are unsure of your obligations.
HMRC may also ask you to consider whether instead of income tax owing on the sale of your personal items, you may instead have a capital gains tax liability.
Digital Platform FAQs
What should you do next?
If you think you might need to report your income, seek professional advice as whether you need to disclose or pay any tax will depend on your unique circumstances.
If you have been earning more than £1,000 for more than just the last tax year, you may need to make a disclosure. This can be done via HMRC’s Digital Disclosure Service (DDS).
In more serious cases of deliberate tax evasion, COP9 protection may be required to prevent criminal prosecution.
You may also need to register for self assessment and file tax returns on an ongoing basis.
If you earn money through online platforms and are unsure about your tax obligations, our Tax Disputes and Disclosures Team can help. Contact us today for expert guidance.
What happens if you ignore this?
Do not ignore a letter from HMRC. If you receive a nudge letter, seek professional advice from advisers experienced in this area.
If you need to make a disclosure and you choose not to come forward, then you can expect HMRC to open an enquiry into your tax affairs.
If HMRC contact you before you notify HMRC, you can also expect higher financial penalties, and there is a risk HMRC will widen their investigation into other aspects of your tax affairs.
Case Studies
The Menzies Tax Disputes and Disclosures team have helped many individuals who have found themselves in receipt of a nudge letter from HMRC regarding their online trading. Our case studies below show just some examples of how the team can help individuals mitigate liabilities and reach swift conclusions with HMRC.
The importance of keeping good records
Mr G approached Menzies as he had received a letter from HMRC regarding selling goods online. Mr G did not realise that his activities amounted to a trade, as he was otherwise employed via PAYE. Mr G bought bicycles and spare parts with the intention of reselling them online. This was therefore a trading activity.
As Mr G had never filed UK self assessment tax returns before, HMRC could assess up to 20 years and so the TDD team supported Mr G in making a full disclosure.
Unfortunately Mr G had not kept good records of his purchases, and in the absence of any evidence Mr G was not able to claim the level of expenses that he would ordinarily have been able to deduct. The total taxes due were in the region of £10,000, and the team supported Mr G in setting up a time to pay arrangement as part of his disclosure settlement with HMRC.
The price of online trading
Mrs C engaged Menzies as she had received a letter from HMRC regarding her online sales of small value luxury items such as bags and watches. Mrs C accepted she was trading, as she was proactively buying items for the sole purpose of reselling them.
The TDD team supported Mrs C in making a full disclosure to HMRC. In contrast to the above case, Mrs C had kept excellent records and purchases and allowable costs could be deducted in full with no estimations or assumptions.
The case was closed quickly, but following the tax bill, Mrs C decided that the venture was not worth pursuing.
The badges of trade
HMRC approached Mr P after receiving information from eBay that Mr P had been selling goods online. Mr P thought he was engaging in just a hobby, but factors such as the frequency of transactions indicated that Mr P’s activities might be perceived as a trade by HMRC. Mr P accepted that his activities amounted to a trade and agreed to proceed with a disclosure on that basis.
The TDD team had to estimate a number of figures, as Mr P had not kept the best records. Our approach to extrapolate figures based on the data we did have was accepted by HMRC. Overall, the pragmatic methodology resulted in losses for Mr P and his case was closed with no tax liability due to HMRC.
A clear out does not amount to a trade
HMRC had become aware from data shared by eBay that Mr M had been selling goods online. The number of transactions alerted HMRC to the possibility that Mr M had a trade, and HMRC issued tax assessments to Mr M for a six-year period.
Mr M engaged with HMRC to try and appeal the assessments, on the basis he was only selling off second-hand goods having had a clear out in his property. Mr M was unsuccessful with HMRC, and engaged Menzies to support him.
The TDD team wrote to HMRC, explaining in the context of the badges of trade and relevant UK tax law, that Mr M was not trading, and no income tax should be due to HMRC as a result. HMRC accepted Menzies’ representations, and all tax assessments and associated penalties totalling approximately £35,000 were withdrawn by HMRC.
