HMRC's new eBay sales tax (and how to dodge it)

It is now required by law for eBay to report sellers' information to HM Revenue and Customs – sparking fears that millions will have to cough up extra to the taxman.

But the online marketplace has stressed to users there isn't a new “side hustle tax”, and the average person selling second-hand items won't be stung.

So what has changed? Here, Telegraph Money explains everything you need to know about the new crackdown, and whether you need to pay tax on your sales.

What are the new rules on reporting side hustles?

British sites were already required to provide data to HMRC, but American web sellers did not. This is where things have now changed, as the UK has signed up to a global effort run by the Organization for Economic Cooperation and Development (OECD), which requires American platforms to collect and report information about any income made by their users.

This means sites such as Depop, Etsy and Vinted are also required by law to share sellers' information with the authorities.

Rules about who needs to declare income through self assessment have not changed.

Chris Etherington, of accounting firm RSM, said: “This is about putting the onus on digital platforms to share information with HMRC – there aren't any changes for sellers.”

So-called side hustles have grown in popularity in recent years but people, intentionally or not, have been able to slip through the net and avoid tax.

It is hoped the new rules will make it easier for HMRC to target sellers who have so far been trading under the radar.

HMRC, which is investing £37m into the project and employing 24 extra staff members, said the new initiative will “help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers”.

When will my details be shared with HMRC?

Sellers' transaction data will only be shared when certain thresholds are met.

Those who complete 30 or more transactions per calendar year, or make more than €2,000 (£1,735) a year in sales will see their data shared with the taxman.

This therefore rules out a large number of eBay users who do not frequently use the site.

Victoria Todd, head of the Low Incomes Tax Reform Group (LITRG), explained: “The new rules have caused a great deal of confusion, but they simply mean that HMRC is receiving more information from online platforms than they were before.

“If you are following existing rules and declaring your income as required, then you don't need to worry, or do anything differently.”

What do eBay sellers need to do?

New eBay sellers will be required to share tax information, which the company is then required to report to the Government. For individual consumer sellers, this will be their National Insurance number.

By January 1 next year, all existing individual sellers will also need to update their profiles to include a NI number for the same purpose.

For those selling on eBay, he told us it “remains” a site where users can “easily sell their items”.

A spokesperson said: “eBay is working closely with our sellers to educate them on the changes, which won't affect their existing tax obligations.

“We've launched online help and information pages outlining exactly what information we'll need to collect, along with how their data is being robustly protected.”

Sellers will be notified by eBay if and when they cross the thresholds which require their details being shared with HMRC.

When is a hobby actually a business?

You might think that selling second-hand items and crafts online is a hobby, but the taxman will class the activity as a business if it can prove you are doing “anything in the nature of trade”.

If you collect items and resell them in a short period of time, or sell home-made crafts online, you could be classified as a business.

HMRC's guidance says: “Evidence that the sole object of acquiring an asset was to re-sell it at a profit, without any intention of holding it as an investment, is a pointer to the conclusion that a trade is being carried on.”

eBay has said that if you're clearing out and selling your personal possessions, it means you are very unlikely to owe tax.

What is the trading allowance?

Using the “trading allowance”, everyone can earn up to £1,000 in additional income not captured by the PAYE system each tax year. Anything which exceeds the tax-free threshold, needs to be reported to HMRC through self assessment.

This means you can earn anything below £1,000 from selling items without having to pay tax. Also, anything sold for less than its purchase price does not count as taxable income.

Ms Todd said: “People selling unwanted personal items such as their children's old clothes or toys are not likely to be trading. Therefore, even if it is a significant amount, any money they make is generally not taxable.”

Meanwhile, those who earn additional income from property – such as renting out a driveway – can be covered by the £1,000 property allowance.

There are a number of tests, or “badges of trade”, that can be applied by HMRC to determine whether sales qualify as trading.

They are detailed as the following:

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