What if HMRC contacted you about income you’ve earned from selling online?

If you’re not doing it, you probably know someone who is. Selling stuff via Facebook, eBay, Amazon, Etsy, Vinted and other online marketplaces has become hugely popular. Some sell brand new products they make or source,…

5 Minute Read

Last Updated: 2nd May 2024

If you’re not doing it, you probably know someone who is. Selling stuff via Facebook, eBay, Amazon, Etsy, Vinted and other online marketplaces has become hugely popular. Some sell brand new products they make or source, while others sell “pre-loved” (AKA second-hand) items. It can be a great way to earn additional income and even lay the foundations for later starting your own full-time business.

Making sales online can be hugely satisfying, but what is less welcome is (UK tax authority) HMRC contacting you about paying tax on your online income. This can come as quite a shock, because you believe you’re just making a few extra bob. In some cases, no tax is payable, but in many others, it is. To explain why and other key points, here are the answers to 12 frequently asked questions about paying tax on online income.

1. Surely HMRC isn’t bothered about income from selling on Facebook, eBay, Amazon, Etsy, Vinted, etc?

If you’re occasionally selling and earning small amounts, less than £1,000 a year before deducting any expenses, you’re not a professional trader, so HMRC won’t be interested in you. However, starting 1 January 2024, HMRC has instructed digital platforms to record and report seller information and income by January 2025, so that it can investigate and seek unpaid tax. This will apply every year, going forward.

Reportedly, HMRC is investing £36.69m and has 24 staff working to enforce this new initiative, which seeks to “detect and tackle tax evasion”. However, according to HMRC: “Occasional sellers of goods on a digital platform, who make fewer than 30 transactions and sell items for less than €2,000 [about £1,720] in a tax year, will not be included in the information reported to HMRC [by the platforms].” But tax can still be payable if your sales are more than £1,000 in a tax year.

According to HMRC: “If you’re just selling some unwanted items that have been lying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax. If you buy goods for resale, or make goods with the intention of selling them for a profit, you are likely to be trading and will have to pay tax on your profits.”

2. So, I can earn £1,000 a year from selling online without having to pay any tax?

You can earn £1,000 of gross income (ie total sales before any tax deductions) from selling online tax-free, because HMRC considers this to be “casual or miscellaneous” income. This is your trading allowance and you don’t have to report income of £1,000 or less to HMRC. Once you make more than £1,000 within a tax year, it can be subject to Income Tax, depending upon how much taxable income you earn from all taxable sources. The £1,000 threshold applies to total sales made on all platforms and websites.

3. What if I’m contacted by HMRC about income from online sales?

HMRC sends  thousands of “nudge letters” each year, encouraging recipients to report income they haven’t paid tax on. If you receive one, don’t panic, but do respond as soon as possible, even if you believe there’s been a mistake or that you don’t owe any further tax. You normally get 30 days to respond. If you simply ignore it, HMRC can take enforcement action, so it’s best to contact HMRC immediately to resolve the matter. You may still need to register for Self Assessment and submit a tax return. It can be wise to seek guidance from a tax adviser or get them to liaise with HMRC on your behalf. 

4. What if I have a full-time job, but just earn money from a “side-hustle”?

How many hours you spend running your side-hustle isn’t important, how much you make in sales is. So, if you’re generating sales worth more £1,000 in a tax year, in addition to your full-time employed income, you’ll need to register for Self Assessment and pay tax on your side-hustle income, providing your total taxable income is above the Personal Allowance (£12,570 for the 2024/25 tax year).    

5. Who is responsible for me paying tax on income made from selling online?

You. You’re responsible for finding out whether any tax is due on income that you earn. If taxable, you must report it to HMRC via Self Assessment and pay the tax when due. Everyone is personally responsible for making sure that they are paying the correct amount of tax when due.

Top tip! HMRC provides a handy online tool that you can use to check if you need to report additional sources of income.

6. How do I register to pay tax on income made from selling online?

Most people who earn taxable trading income and so need to report it to HMRC register as a sole trader, which is free and easy to do. You register for Self Assessment via government website GOV.UK. If you haven’t done this before, you must do so before 5 October after the end of the tax year (5 April) in which you earned taxable income. You’ll be fined if you don’t.

7. How do I report taxable income from selling online to HMRC?

To report your taxable trading income to HMRC you complete a Self Assessment tax return (called an SA100) plus supplementary page SA103. Basically, you summarise your taxable income as well as tax expenses, allowances and reliefs you wish to claim. 

Need to know! Each year, the Self Assessment online-filing deadline is midnight on 31 January. If you want to avoid an automatic £100 fine, you must file your tax return online before it arrives.

8. Can I claim any tax expenses when selling things online?

If you want to claim the £1,000 tax-free trading allowance, you cannot claim any tax expenses. However, if your income is more than £1,000 in a tax year, claiming tax expenses for costs you pay will reduce your tax bill, possibly quite significantly, so it’s worth doing.

Top tip! Be sure to find out about the full range of allowable expenses you can claim as a sole trader.

9. How much tax will I pay on income I make from selling online?

The amount of tax payable on the income you make from selling online is determined by the Income Tax band your total taxable income falls into. You’ll pay:

BandTaxable income    Tax rate
Personal Allowance   Up to £12,5700%
Basic rate £12,571 to £50,27020%
Higher rate£50,271 to £125,14040%
Additional rateOver £125,140
45%
  • National Insurance contributions (NICs) can also be payable on trading income.

Need to know! In addition to your trading allowance, no Income Tax is payable on the first £12,570 of your income, because this is your tax-free personal allowance. You can also claim £1,000 property allowance, if you earn money from renting out land or property (but if you claim tax expenses as a landlord, you cannot claim the property allowance).

10. What records should I keep if I sell things online?

You must maintain accurate, up-to-date records of your sales and business costs/expenses if you plan to claim them, with exact figures and date of sale shown, because you need this information to accurately fill in your annual Self Assessment tax return – and back up the figures you report, should HMRC ask for proof. For the same reason, you should also retain invoices and sales receipts for things you buy for your business.

Need to know! HMRC can fine you if your trading records are not accurate, complete and readable. Falsely claiming expenses and/or not reporting sales to attempt to lower your tax bill can both lead to a hefty fine from HMRC. 

11. What if I don’t pay tax on taxable income and HMRC finds out?

You face the very real risk of having to pay a penalty, as well as any tax due, plus interest, which can prove to be very expensive.

12. What if I’ve earned taxable income from online selling in previous tax years?

If you believe that you owe tax on sales made online in previous years that you didn’t report, voluntarily coming forward, because the penalties can be much lower and there may not be any if you’ve made an innocent mistake (although you’ll need to pay any tax due). If you don’t and HMRC opens an enquiry, the penalties can be much higher, and you’ll need to pay any tax due, plus interest. The consequences are much worse for those who have deliberately not reported taxable income and who have attempted to conceal it.

GoSimpleTax is award-winning software that makes it quick and easy to complete and file your Self Assessment tax return and SA103. It can also prevent you from making basic tax return errors that can later cost you time and money. Thousands of sole traders, landlords and others trust and love GoSimpleTax. To find out why, start your FREE trial today!

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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