New measures have been implemented which introduce a reporting requirement for certain UK digital platforms. The platforms targeted by these regulations are those which facilitate the provision of goods and services for both UK and non-UK taxpayers.
In recent years, there has been a rise in both the number of UK digital platforms available and the number of people who use them. The digital platforms, or ‘online marketplaces’, caught by these measures come in wide variety, such as food delivery services (Deliveroo, Just Eat), the sale of first or second-hand goods (Ebay, Etsy, Depop), ride share or taxi services (Uber, Lyft) and short-term property lets (Airbnb).
Under the new regulations, these platforms will be now required to collect information about the ‘sellers’ on the platform, such as name, address, date of birth as well as all transactions relevant to the seller in the reporting period. This information will then be reported to both the seller and HMRC on an annual basis.
These measures came into effect from the 1 January 2024 with the reporting period running in accordance with the calendar year i.e. 1 January to 31 December. The reporting deadline for this information to both the seller and HMRC is the 31 January following the end of the reporting period. The first information is therefore expected to be reported to HMRC in January 2025.
What impact will this have?
The purpose of these measures is two-fold: to aid the sellers on these platforms in summarising their income earned for the purpose of their Self-Assessment annual filings, and to aid HMRC in detecting and deterring tax evasion.
With this information now more readily available to HMRC, sellers who do not report, or underreport, income from these platforms may face unforeseen tax liabilities.
It is important to note, however, that not all income generated by sellers on these platforms is necessarily taxable. Individuals who sell goods or provide services via UK digital platforms may be subject to UK Income Tax on any profits made, but this is dependent on whether this activity constitutes a ‘trade’.
The selling of excess or unwanted goods, such as old clothing or furniture which you have previously used, but which you no longer have a need for, would unlikely constitute trading activity and therefore this income would not be subject to UK Income Tax.
However, where goods are produced, purchased for resale or services provided, this would likely be considered a trade and any profit arising from this activity will be subject to UK Income Tax (and potentially National Insurance).
HMRC offers a concession for individuals with small trading activities in the form of a Trading Allowance of £1,000. Therefore, where trading income for the tax year before the deduction of any business related expenses is less than £1,000, this would not be subject to UK Income Tax. Where trading income exceeds £1,000, taxpayers can choose whether to deduct the trading allowance, or deduct any actual business expenses incurred.
An exception to the above is where platforms are used for the provision of property letting services. In this case, any income arising from this service would be regarded as Property Income. For property income, there is no concept of ‘trading activity’ and therefore any profit arising from the letting of UK property is subject to UK Income Tax.
A similar concession is offered by HMRC in respect of small property let businesses in the form of the Property Allowance of £1,000. Where total rental receipts for the tax year before the deduction of any expenses is less than £1,000, this would not be subject to UK Income Tax. Where total property income exceeds £1,000, taxpayers can choose whether to deduct the property allowance, or deduct any actual related expenses.
What should you do now?
If you are uncertain whether you may be impacted by these new measures, or if you have previously generated income from a UK digital platform and this income has not been reported to HMRC, failure to act could lead to significant tax issues.
If you would like further guidance, please contact Karen Anderson.
