On 1 January 2025, digital platforms such as eBay became required by law to report to HMRC any sellers who had made more than a few sales. The measure is intended to ensure that sellers pay tax on their sales.
This will be of interest to any individuals who make sales via eBay or any other digital platforms, such as mobile apps and websites.
The issue
Many digital platforms that allow individuals to sell goods through them, have informed their users that they will be reporting them to HMRC so that it may deal with the proceeds of these online sales. This is alarming for ordinary people who do not think of themselves as a business and do not think they owe business taxes to HMRC.
The good news is that many sellers are not a business, as matter of simple fact, and are therefore not expected to meet the requirements of businesses or comply with the business taxes.
However, the reports to HMRC do not distinguish business from non-business activities. It is likely to fall to the individual sellers to explain themselves to HMRC.
What are the new rules
New powers were granted under Section 349, Finance (No.2) Act 2023, to enforce Organisation for Economic Co-operation and Development (OECD) rules.
The new rules require digital platforms to report to HMRC sellers making 30 sales or more of goods in a year; or receiving Euro 2,000 (approximately £1,700) or more in a year.
Individuals will be reported to HMRC whether they are selling items from their attic, selling collections, downsizing home, decluttering, or simply selling a few items a month. It will be important for these individuals to understand whether they are a business (and the implications of this) or not a business (and how to defend themselves).
VAT: business v non-business
New businesses are not required to register for VAT until turnover in any rolling 12-month period exceeds the VAT registration threshold (currently £90,000).
When it comes to sellers being reported to HMRC by digital platforms, there is a prior question to consider: are the sales a business activity at all? Or are they a non-business private transaction?
In 2022, HMRC set out their test for determining when an activity is a business. The courts have been asked to consider this matter on two separate occasions. In short, if the activity is a supply of goods or services for which payment is received (usually in cash) and if the activity is carried out with the purpose of obtaining income, then a business exists for VAT purposes.
To help make sense of this test, HMRC currently has “six indicia” or indicators that help HMRC officials to determine whether an undertaking falls under the definition of a business:
- is the activity a serious undertaking earnestly pursued
- is the activity an occupation or function that is actively pursued with reasonable or recognisable continuity
- is the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies made
- is the activity conducted in a regular manner and on sound and recognised business principles
- is the activity predominately concerned with the making of taxable supplies for a consideration
- are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them
The above rules apply to all activities at all scales. They can be used to assist multi-million-pound collections or other private sellers to determine whether they are or are not a business. Although the tests and rules in place are still not clear cut, it will be easier for a seller to consider for themselves whether they were “acting on sound business principles” or “a serious undertaking earnestly pursued” or “with recognisable continuity” and so on.
After a seller has reached their own conclusion as to whether they were or were not acting as a business, the seller will look to support their conclusions with documentary evidence (e.g. when the collection was formed, maybe there are photographs from years ago; or emails saying shall we empty the loft this weekend; and so on).
Some sellers will indeed be businesses, and these tests might help them cooperate with HMRC to set up their business taxes correctly. If determining whether they are a business, they should then consider whether to register for VAT voluntarily to recover VAT on costs, apply one of the schemes for low turnover businesses and what other taxes might be payable. They will also need to consider what other legal obligations may fall on them as a business.
When your digital platform reports you to HMRC, the first step is not to panic. Consider whether you meet the requirements to be called a business then gather your evidence accordingly and engage with HMRC as required.
If you would like to understand more, please do not hesitate to contact us, we would be delighted to discuss any queries.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
