HMRC has sent a fresh wave of ‘nudge letters’ in another crackdown on sellers who fail to declare money earned online.
The tax office has reportedly sent retrospective nudge letters to people they suspect have not reported income from selling on platforms like Ebay and Vinted.
It comes just a month after new rules came into force that require platforms to automatically report information about users and their selling habits to HMRC.
It means that HMRC will have more information on who is earning money on online platforms and therefore find it easier to spot who owes tax.
Nudge letters: Online sellers using platforms like Vinted to sell unwanted goods may have to pay tax
A new wave of nudge letters suggest HMRC is starting to see which sellers have slipped under the radar and failed to pay tax on their earnings.
The recipients have been selected based on data HMRC has received from marketplaces, according to the Chartered Institute of Taxation.
The letters say: ‘We have information that shows you’ve earned income from online marketplace sales up to the tax year ending 5 April 2023. You need to tell us about this income. This is because you may owe tax.’
Why you shouldn’t ignore a nudge letter
Online sellers who have received the letters will have just 30 days to either declare their income or contact HMRC.
Dawn Register, a tax dispute resolution partner at BDO said: ‘People who receive this letter may be tempted to file it away but they absolutely should not ignore it.
‘There are a number of ways in which people can make a voluntary disclosure to HMRC about underpaid tax.
‘Selecting the most appropriate route will depend on a person’s individual circumstances and the reasons why the inaccuracies occurred.
‘Unpaid tax may be subject to late payment interest – currently at 7 per cent and set to rise by a further 1.5 percentage points in April – plus penalties depending on the nature of the reasons for non-compliance, so it often pays to come clean at an early stage.
‘In some cases, those with historical tax liabilities may be able to agree a Time to Pay arrangement to repay money owed in instalments.’
Will you be sent a nudge letter for selling online?
While the letters show HMRC is retrospectively cracking down on sellers, the rules have not changed.
Anyone who earns less than £1,000 in side gigs within a tax year does not have to pay tax or declare the income, because of the Trading Allowance.
But if you earn even £1 more above that allowance, you’ll need to contact HMRC.
That said, if you’re doing a clear out of old clothes you’re unlikely to be stung by extra taxes.
HMRC says you can be classed as a ‘trader’ if you regularly sell goods or services through an online marketplace, but this will depend on what you’re selling, why you’re selling and whether you’re making a profit.
There’s not one definition of what constitutes a trade, but if you are not making a profit on the goods and it’s a one-off sale it’s very unlikely you’re going to be classified a trader.
You can check if you need to declare your income by using HMRC’s online tool.
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