As of 1 January 2024, HMRC will require digital platforms to collect information about tax, national insurance and income from customers who want to sell on their platforms. This move is to combat tax evasion by individuals who earn money through online sales.
One platform that has already made changes to its tax policy is eBay. It has updated its website to include more information about a vendor's income and tax affairs, kindly warning users may be asked to declare or pay taxes on their earnings on the ever-so-popular online sales website. platform.
But it's not just eBay that is affected by this new rule. Any digital platform operating under the Organisation for Economic Co-operation and Development (OECD) now has to collect the necessary information from its users.
What is Online Sales Tax?
Online tax, also known as OST, is a form of taxation on income earned through digital platforms. This can include selling goods or services online, renting out properties on websites like Airbnb, or even earning money through freelance work on online platforms.
The information that was collected by websites like eBay, Etsy or Vinted does not have to be shared until the end of January 2025, this may give you a good window to decide whether or not to sell online before sorting out your additional income tax on online sales.
Do I Need to Pay Tax When Selling Online
After 1 January 2024, if you are selling online on platforms such as eBay or Airbnb, then yes, you may need to pay tax on your earnings. However, the exact amount and threshold for declaring your income differs depending on where in the world you are based.
How Much Can I Earn Online Before Declaring It?
In the UK, you can earn up to £1,000 - roughly £83 a month- in a tax year before declaring your income from online sales. This is known as the trading allowance and applies to all forms of self-employment, including online sales.
However, it's important to note that this allowance only applies if you have no other taxable income. If you have any other sources of income, you will need to declare your online sales earnings regardless of the amount.
For Airbnb, it is £7,500, check the Rent a Room Scheme for more information.
For more, check our blog about "Additional Income Tax"
What Happens If I Don`t Declare My Earnings Online?
If you do not declare your online sales income, you could face penalties and fines from HMRC. The amount of the penalty will depend on how much tax you should have paid and if it is your first offence.
It's important to keep track of all your earnings from online sales and report them accurately to avoid any issues with HMRC in the future.
Remember, the information flows internationally to HMRC so the online vendor can`t evade this additional income tax anywhere on the globe.
You may face unexpectedly large bills, inspections, audits and even criminal charges if you do not declare your earnings by selling online. To make the information flow user-friendly, platforms like Vinted and Etsy have already begun developing easy-to-use information collection forms.
In conclusion, the new requirement by HMRC for digital platforms to collect information about tax, national insurance and income from online sales is a step towards combatting tax evasion. Popular platforms like eBay and Airbnb have already updated their policies, and any platform operating under the OECD now has to comply with this rule. It's important for individuals who earn money through online sales to keep track of their earnings, declare them accurately, and pay any necessary taxes to avoid penalties and fines from HMRC in the future. So, if you are planning on selling online, make sure to familiarize yourself with the tax laws in your country and stay updated on any changes that may affect your income from online sales. Stay informed and stay compliant!
For further reading on additional income