Navigating Tax Compliance in the Digital Age: What Online Sellers and Influencers Need to Know

As online platforms gear up for incoming regulations that mandate transaction disclosures, HMRC has already initiated compliance assessments targeting top earners.

With the UK’s commitment to the OECD’s initiative for global data exchange to combat tax evasion, HMRC gains access to vendor details on digital platforms.

Platforms like eBay, Etsy, Vinted, and even media platforms such as Instagram and OnlyFans must gather and relay sales and revenue data from their merchants and content creators to HMRC. Similarly, service-oriented platforms such as Uber, Deliveroo, and Airbnb are obligated to disclose information on paid services. Interestingly, it’s the younger generation that explores online platforms for extra income.

Although the first comprehensive data report from these platforms isn’t due until January 2025, HMRC has proactively begun compliance verifications on the most significant earners reported in past years. HMRC has once more enacted a policy shift without clear, systematic guidance.

To date, online vendors and social media influencers have been subjected to stringent and unprecedented internal audits by HMRC, typically overseen by compliance officers.

It’s essential to note that income tax isn’t new; this data merely offers HMRC more visibility into potentially suppressed income.

Under the international data exchange program, HMRC has the capability to share taxpayer information with other nations’ tax bodies that are participants in the agreement. For example, if a UK resident generates income from an OnlyFans account based in the US, the IRS and HMRC can exchange details about this income.

When filing a tax return that involves multiple currencies, it’s advisable to convert all amounts to GBP. Influencers need to be mindful that if they operate as sole traders and their sales surpass the VAT threshold, which is currently set at £90,000, they must register for VAT. While platforms are not tasked with declaring VAT dues, the worth of ‘gifts’ received from brands or supporters may influence the calculation of the VAT threshold.

It may come as a surprise to many influencers that promotional gifts are factored into the VAT registration threshold, potentially necessitating VAT registration and subjecting them to compliance reviews. Moreover, companies that provide gifts must also declare VAT for these items, which could trigger VAT evaluations.

The general guideline is that your data will be disclosed to HMRC by platforms if you meet either of the following criteria:

- Selling 30 or more items a year

- Earnings exceeding the taxable income threshold of £1,000.

If either of these provisions apply as a result of your trading, you are required to file a tax return.

In the event that you have neglected to file tax returns for relevant past years, it’s advisable to voluntarily disclose this to HMRC. Even though initial instructions were not provided when online platforms began permitting income generation, HMRC still enforces fines for delayed disclosures.

 We should also take into account the following points

High-Value or Luxury Items:

 If you sell high-value or luxury items on platforms like eBay or Amazon, reporting the proceeds to HMRC might fall under capital gains tax rather than income tax.This applies if the total exceeds £6,000. Keep in mind that capital gains tax won’t be in addition to income tax; it replaces it.

Airbnb and Rent-a-Room Relief:

Claiming rent-a-room relief depends on specific conditions. First, your rental income must reach £7,500 (halved for joint owners). Additionally, the property must be your main or only residence. For instance, if you live in your primary London residence but rent out a holiday home in Cornwall via Airbnb, it won’t qualify for relief. You’ll need to report those earnings as part of your income tax assessment.

Furnished Holiday Lettings (FHL) Tax Regime:

The UK government plans to abolish the FHL tax regime. This change aims to remove tax advantages for short-term furnished property rentals. Keep an eye out for further updates on this matter.

Business Expenses and HMRC Scrutiny:

 When reporting side hustle income, you can deduct relevant business expenses. However, HMRC has been stringent about what qualifies as an “allowable” expense. The law states that expenses must be “wholly and exclusively” for trade purposes. Interestingly, HMRC’s approach relies on a precedent set before the era of social media (Mallalieu v Drummond, 1983). This outdated framework doesn’t account for modern employment and technology changes.

Influencers and Appearance-Related Expenses:

 Influencers who buy specific branded clothing or cosmetics for their business, primarily based on appearance, face scrutiny and rejectionsfrom HMRC.

If you need to complete tax filings, please consider seeing professional advice. Our experts can guide you on expenses, potential reliefs, and the tax return filing process.