HMRC targets savvy online sellers: what you need to do

As online platforms prepare for new disclosure rules on transactions, Danielle Ford, partner at haysmacintyre, warns that HMRC has already started compliance checks on the highest reported earners 

Following the UK’s agreement to the OECD’s global data sharing objective to tackle worldwide tax evasion, HMRC will now be able to access seller information on online platforms.

Platforms such as Etsy, Vinted, eBay and even media platforms such as Instagram and Only Fans, are required to collect sales and income information from their sellers and influencers to share with HMRC.

In addition, platforms which provide services such as Uber, Deliveroo and Airbnb, will also have to share their data on any services which receive payment. Interestingly, it is the younger generation which takes advantage of using online platforms to generate extra income.

Whilst platforms will not report their first full year of data until January 2025, HMRC has already kickstarted compliance checks on the highest reported earners in previous years. Once again, HMRC has implemented a change without providing coherent guidance or a structured approach.

Thus far, online sellers and influencers have faced rigorous and unchartered internal reviews by HMRC, usually conducted by a compliance officer who might have thought ‘TikTok’ was just a Kesha song…

‘TikTok’ on the tax return clock

Not all sellers have to file a tax return. Despite the media attention, it does not apply to everyone.

It is important to note that income tax is not new, this data is just a new resource available to HMRC to view online information which provides more visibility on potentially supressed income.

Therefore, it is important to stay on top of your sales, expenses, and side hustles.

As this is a global data share initiative, HMRC will be able to share this information with other tax authorities who have also signed up to the agreement, and vice-versa.

For example, if you live in the UK and your Only Fans account is earning in the US, an exchange of data on your income can be made between the US Internal Revenue Service (IRS) and HMRC.

This is a simplified example, but it is important to consider when reporting your tax return, particularly if you are earning in different currencies – the figures will need to be converted to GBP.

Influencers should also be aware that a sole trader should be VAT registered if the value of their sales take them over the VAT threshold (currently £90,000). Platforms are not responsible for reporting VAT liabilities and the value of ‘gifts’ received from brands or followers can be included in the VAT threshold calculation.

Many influencers are not aware that if gifts are given for the purposes of promotion, the value of the gifts may be included in the VAT registration threshold calculation, therefore making them liable to be VAT registered and subject to VAT compliance checks.

Furthermore, the businesses gifting the product are also liable for reporting the VAT on the gifts they supply, leading to them also receiving a VAT assessment.

The rule of thumb is that platforms will only send your information to HMRC, and you will only need to complete a return, if you fall under one of two categories:

  • you’re selling 30 or more items a year; or
  • your earnings exceed the taxable income threshold of £1,000.

If either of these provisions apply and you are trading, not just selling your pre-loved clothes, a tax return should be filed.

Missing tax returns

If a return hasn’t been filed for previous years for which this is also applicable, an unprompted disclosure to HMRC should be considered now.

HMRC states that the onus is upon the taxpayer who ought to have known to report this income previously, even though they did not provide any guidance at an earlier stage when online platforms first allowed anyone to make a profit.

On this basis, HMRC has still been imposing penalties on those who make a disclosure.

Furthermore, for those selling a high value or luxury item on platforms such as eBay or Amazon, you may have to report this to HMRC as a capital gain rather than income tax, if it exceeds the threshold of £6,000.

Airbnb and rent-a-room relief is also a grey area. You can only claim this relief if you meet certain conditions, the first being rental income of £7,500 (halved for joint owners) and critically that the property is your main or only residence.

For example, if you live in your primary residence in London but have a holiday home in Cornwall that you rent as temporary accommodation on Airbnb, this will not meet the conditions for the relief, and you are obliged to report your earnings as part of your income tax assessment.

Furthermore, in the Spring Budget 2024, the UK government announced that it was also intending to abolish the furnished holiday lettings (FHL) tax regime. This will aim to remove the tax advantage from those who let furnished properties for a short term.

HMRC rules no glam for the ‘Gram’

If you are required to submit a tax return for your side hustle income, you are entitled to claim a deduction for relevant business expenses.

Compliance checks thus far have indicated that HMRC has been particularly strict in its approach on what is an ‘allowable’ expense.

Legislation states expenditure must be ‘wholly and exclusively’ for the purpose of the trade. This has become a contentious issue, as HMRC is applying expenses regulations based on a precedent from a tribunal outcome predating the invention of social media (Mallalieu v Drummond (1983)).

The reality is that the application of compliance is being conducted without any updated legislation to reflect changes in employment, technology, and expense requirements.

For example, influencers who are required to purchase specific branded clothing or cosmetic products for their business, and conduct their business solely based on appearance, are facing backlash and rejections from HMRC.

If you are required to complete tax filings, seeking professional advice is advised. It is particularly crucial as an expert will be able to advise on expenses, potential tax reliefs, and to guide you through the process.

 

 

 

 

Bank details being changed on HMRC portal in VAT scam

Accountants are warning companies to be extra vigilant as there has been a surge in fraudulent activity affecting VAT repayments from HMRC

Certain sectors are being especially targeted including businesses in food, farming, construction, and export-heavy organisations.

The recent cases involve the changing of bank account details on HMRC’s portal, with VAT repayments then diverted to a third-party.

Fraudsters are disguising themselves as taxpayers to alter bank account details on HMRC’s online portal.

HMRC is seeing an increase in fraudulent activity, according to information obtained by property VAT authors Martin Scammell and Chris Nyland.

HMRC is aware of the issue and is asking those affected to report the fraud, providing the reference of the affected VAT registration number.

In an attempt to stop the fraud, HMRC has also announced plans to withdraw the PDF version of form VAT484 – the form used to amend and update VAT details such as bank accounts.

Gary Frear, agriculture expert and partner at Price Bailey warned that the scam presents a real risk to the farming community.

‘Given that the majority of farming entities are receiving monthly or quarterly VAT refunds, it is essential for the cash flow of the farm to continue receiving these refunds without interruption,’ said Frear.

‘We are also now entering a period when farms are typically purchasing inputs like sprays and fertilisers and the refunds could be much larger.’

Greg Mayne, a VAT partner at Price Bailey, added: ‘HMRC are aware of the recent spike in fraudulent activity and are said to be dealing with these. They are also suggesting that larger businesses have been the primary target and are asking these organisations to confirm the authenticity of any account changes.

‘Despite this, we are hearing some smaller businesses have also been affected and so, for the time being, taxpayers submitting repayment claims must be especially vigilant and check that their bank account details have not changed.’

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