Taxpayers may be contacted by HM Revenue & Customs (HMRC) if they have earned income from online marketplaces up to the tax year ending 5 April 2023. This latest ‘nudge letter’ is part of HMRC’s ‘side hustles’ campaign – where they are actively clamping down on individuals who fail to declare extra earnings, including online marketplace sales.
Digital platform reporting delivers clarity to HMRC
Letters are being sent out up to and including 30 May 2025, with recipients identified from data HMRC has received from digital platforms about their sellers.
Digital platform operators, such as Etsy, Booking.com, Airbnb and Vinted, now need to share detailed information about their sellers with HMRC, including total amount paid to the seller; number of transactions the seller received payment for; and bank account details to which amounts were paid. All of this data adds up to provide a clear insight into which sellers might be classed as ‘trading’ online and therefore owe income tax.
The new rules for digital platforms came into effect on 1 January 2024, with the first wave of reporting submitted by 31 January this year – hence the opportune timing of the letters, as HMRC now have evidence of sellers’ profits and transactions.
Tax and trading online
The letter outlines the fact that if you make or buy things to sell at a profit online, it is likely to be classed as ‘trading’.
All sellers are granted a £1,000 tax-free allowance for ‘trading income’. If the total income from trading online is less than the £1,000 allowance (before deducting expenses) in any tax year, there is no requirement to declare profits to HMRC or pay any tax.
HMRC needs to be informed if sales are more than the £1,000 trading allowance, or if a personal item is sold for £6,000 or more – in which case Capital Gains Tax (CGT) may be due. CGT is liable on the overall gain above the tax-free allowance (£3,000 for the 2024-25 tax year.) Further details on CGT can be found here.
Taking action
Individuals receiving a letter have 30 days from the date of the letter to declare their income or get in touch with HMRC – the key point being that the letter must be responded to, even if there is no disclosure to make.
Underpaid tax can be declared to HMRC using their online service. If there is no income to declare, this should be communicated by calling HMRC on 0300 123 0998 or emailing ISBC.OnshoreDisclosures@hmrc.gov.uk, quoting the reference number at the top of the letter.
If HMRC have not previously been told about tax being owed, they will treat any disclosure made as ‘prompted’ and this may impact any penalties due. Daily interest is also charged on late tax payments (currently at a rate of 7%), so the sooner a disclosure is made and the tax paid, the less interest will be due.
How M+A Partners can help
M+A Partners’ tax experts provide specialist advice to guide you through the complexities of tax, helping you to plan ahead and remain compliant.
There are different processes through which you can make disclosures of income owed to HMRC and it is important to ensure you are using the disclosure service that is most appropriate for your circumstances.
If you would like further guidance on making a disclosure or ensuring your tax affairs are in order, get in touch with our experts using the details below or email us.
