In a significant development, HM Revenue & Customs (HMRC) is set to enforce stricter regulations on those earning additional income from online platforms.
With the introduction of new rules scheduled to take effect from 1 January 2024, it is vital for those who earn additional income to familiarise themselves with the legislation to avoid penalties and tax bills.
Understanding the new regulations
From the onset of 2024, online marketplaces such as eBay, Etsy, and Airbnb will be obligated to report the earnings of their users to HMRC.
This marks a departure from the previous approach, where HMRC would request such information sporadically.
The range of this legislative change is broad, encompassing a variety of platforms both within the UK and internationally, such as Vinted, eBay, Depop, Etsy, Uber, Airbnb, and JustPark.
This change will affect an array of people, from holiday rental hosts to online sellers and delivery drivers.
Termed “The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023,” the new legislation seeks to align UK tax with the realities of modern commerce.
Criteria for tax obligations
The need to pay tax is dependent upon whether you are classified as a “trader” and the amount of income generated.
Commonly, engaging in online buying and selling with profit-making objectives will render you a trader in the eyes of the law.
There is a £1,000 trading allowance for supplementary income within a tax year, enabling earnings below this threshold to be non-taxable and not obligatory for declaration. Surpassing this allowance, however, requires the completion of a tax return.
For those offering furnished lodging within their residence, the rent-a-room scheme provides a £7,500 tax exemption. It is important to note that an excess even by £1 requires disclosure to HMRC.
Methods of tax payment
Should you need to submit a tax return for the 2022-23 tax year, the registration for Self-Assessment should have been concluded by 5 October 2023.
If you have not registered, it is advised to do so as soon as possible. The submission deadline for online tax returns and the corresponding payment is on 31 January 2024.
Tax payments can be fulfilled through several channels including online banking, debit cards, or by cheque.
However, it is important to recognise that such tax cannot typically be paid via PAYE but rather must be managed through self-assessment.
The upcoming changes by HMRC signify a substantial shift in the reporting and taxation of secondary incomes on digital platforms is reported and taxed.
With these changes fast approaching, now is the time for organising your tax-related matters.
Non-compliance could cause not only unforeseen tax demands but also financial penalties.
If you need tax advice regarding your secondary income, get in touch with one of our experts today.