If you’ve sold clothes on Vinted or Depop, or something you’ve made on Etsy, you might have been alarmed or confused by information recently published by HMRC on paying taxes when selling items online.
It includes the information that from January 1 2024, online sales platforms enabling sales of goods or services – such as eBay, Depop and Vinted – will be required to collect information on the income generated by sellers on those platforms, and pass on this information to HMRC by January 2025.
This is not a new tax. The rules on what counts as taxable income haven’t changed. But it does mean that HMRC will have more information on cases when people selling online should pay tax and don’t. And because this information will also be passed to the person selling, it will be useful information if you need to fill out a self-assessment tax return.
This article is part of Quarter Life, a series about issues affecting those of us in our twenties and thirties. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.
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You may be wondering whether or not you need to pay tax on items you’ve sold. The key point is whether or not you are carrying out a trade. Here are three main questions to ask yourself to figure it out. These apply no matter your age – under 18s can be required to pay tax too.
1: Am I making or buying the things that I am selling specifically to make a profit?
You might be selling unwanted personal items, most likely for less than they were bought for, to make space or to recoup some money on something you needed, used, but don’t want any more. This is not carrying out a trade.
But if you bought clothes from thrift stores or made knitted gloves with the intention of then selling them for a profit, for instance, this is a trade, whether you sell the items in a physical shop or through an online platform. You may need to pay income tax.
2: How much income did I generate in total during the year?
This applies if you’re carrying out a trade – selling items to make a profit. If the total of all your sales, added up (not how much profit you made, once you take off the cost of materials, or the original cost of something you bought and sold on) is less than £1,000, you don’t have to pay any tax. There is a trade allowance of £1,000, meaning that you can earn up to £1,000 without any tax implications.
But if it’s more, you will need to tell HMRC about it by filling out a self assessment form and HMRC will consider what other income you earn to decide whether there is any tax to pay.
3: Did I sell any item for more than £6,000?
Even if you’re not carrying out a trade and so don’t have to pay income tax, you might still need to consider capital gains tax. In the UK, in addition to tax on our income, we are also required to pay tax when we sell a significant item for more than we paid for it.
If you sold something for more than £6,000, and sold it for more than you paid for it, then this is a separate declaration to HMRC. Again, there is no change to the regulations, and if you sold items for less than you paid for them, you do not have to pay tax. But if you inherited a vase that turned out to be an antique and you sold it on eBay for more than £6,000, for instance, you will have to declare this income.
Paying tax
If you made money through trade or by selling something of high value in the financial year which ran from April 2022 to April 2023, you will need to fill out your tax return and pay any outstanding tax by January 31 2024.
If you think you might have to pay tax, or you are worried or unsure, the HMRC guidelines may help you. There is also an online tool which asks a series of questions to help you clarify your next steps.
There is no new requirement for people selling online to pay tax. Anyone selling items online for profit with an income of over £1,000 should already be declaring this income to HMRC. But this new collection of information has sparked widespread anxiety and significant media coverage.
Perhaps you didn’t realise that you might have to pay tax. But we also have a complex relationship with our requirement to pay tax – between our natural selfishness and our desire to live in a fair society. Paying tax can feel like losing money, but that money goes towards supporting our society.
Fundamentally, the collection of this sales data has been positioned by HMRC as beneficial to those preparing their tax returns, to ensure that earned income (or capital gain) is appropriately taxed. If we trade from a shop front or via an app, we should be taxed in the same way and on the same basis – what could be fairer than that?