Digital platforms like eBay, Vinted, and Airbnb are now obligated to report their users’ earnings to HM Revenue & Customs (HMRC) in a bid to ensure that tax laws apply to the digital space.
Filing correct and compliant tax returns has always been a moral and legal necessity for small business owners anyway.
However, with these platforms now automatically reporting directly to HMRC, the need for efficient and accurate record-keeping is even more important – especially for those with a more casual ‘side hustle’.
Who the legislation applies to
The regulation will impact digital platforms that aid in the provision of services or the sale of goods, involving UK taxpayers.
Whilst this includes e-commerce platforms like Vinted and eBay it also encompasses those offering services like taxi hire and food delivery.
If you use these platforms merely to purchase goods or services, you won’t be affected by the new regulations.
What if I have a side hustle?
While your main income might have taxes automatically deducted by your employer via PAYE, this isn't the case for additional income from side hustles, such as Uber driving or online sales.
This extra income is separate from your main job and isn't included in the tax your employer calculates.
As a result, it's your responsibility to report this additional income to HMRC – just like the self-employed do.
This is especially important now that HMRC's visibility into your earnings from platforms has increased.
Therefore, even if you have a regular job with taxes deducted at source, you must still be diligent in self-reporting any income from your side hustles.
Allowances and exemptions
The Scholes CA team have already been helping some of our clients to reduce their tax liabilities through allowances and exemptions.
The trading allowance, for example, lets you make up to £1,000 per year tax-free through self-employment.
Similarly, if you're renting out a room on Airbnb, you can take up to £7,500 per year without incurring Income Tax obligations through the Rent a Room Scheme.
Consequences for failing to report correctly
If your self-reported income is out of sync with the figure that these platforms report to the tax authorities you could be at risk of penalties, fines, and a permanently damaged reputation.
As a result, it is important to correctly manage and maintain your documentation and financial records to a high degree of accuracy.
Where to go if you need help
However, we would always recommend getting in touch with a qualified and experienced accountant who can help you reduce your tax liabilities and streamline your Self-Assessment tax returns.