Individuals who sell secondhand items online are at risk of being investigated and fined by HMRC, a tax expert has warned.
Under new rules implemented earlier this year, online selling platforms are now automatically reporting information about users and their selling habits to the taxman.
It has begun to send ‘nudge letters’ to sellers who fail to pay tax on their earnings and an expert says some casual sellers trying to beat the rising cost of living are at risk of large fines.
Lee Murphy, managing director of The Accountancy Partnership, says the letters are not just a scare tactic.
He adds: ‘Ignoring them may lead to full tax inquiries and criminal investigations.’
Tax warning: Selling secondhand clothes online could come with a fine if not declared properly
What to do if you receive a letter from HMRC
Online sellers who receive letters from HMRC have just 30 days to either declare their income or contact HMRC.
While the letters show the Government is cracking down on sellers, the rules have not changed and remains a grey area.
Anyone who earns less than £1,000 for selling online within a tax year, does not have to pay tax or declare their income. This is because of the Trading Allowance.
But if you earn £1 more above that allowance, you’ll need to notify HMRC.
However, if you’re selling secondhand goods like old clothes and books after a clear out, you’re unlikely to be stung by tax.
This is because you need to be classed as a ‘trader’ to have these goods included within the allowance. This will depend on how regularly you sell, what you sell and whether you’re making a profit.
‘If you do, however, earn over £1,000 from your side hustle each year, or you exceed 30 sales within one year, then you must let HMRC know about this to avoid getting any fines or being under any sort of criminal investigation,’ says Murphy.
‘If you’re unsure how many items you’ve sold or how much money you’ve made so far, then it’s best to go back and find your detailed sale records.
‘Also keep track of any expenses that’ve gone with the sales; stamps, postage materials and courier payments, as you could get some of this back when the time comes to doing your Self-Assessment tax form.’
How the rules are changing for online sellers
The current rules might seem arduous, especially for online sellers who might sell more than 30 items but not breach the Trading Allowance.
However, HMRC will raise the reporting threshold from £1,000 to £3,000 by the end of 2029.
Sellers will still need to pay tax on anything earned over £1,000, but instead of filing a tax return, those earning money from side hustles will have to either pay via a simple tax bill or possibly through their PAYE tax code.
HMRC said the changes would mean up to 300,000 people will no longer need to file a self-assessment tax return, including those who sell on Vinted and Ebay.
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