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Online platforms in the UK are now legally required to report the amount of income sellers are generating via their systems, following the introduction of new HMRCHis Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes. rules that came into effect on New Year’s Day.
Leading marketplaces such as Airbnb, eBay and Vinted are among those that must pass data to the tax authority, allowing HMRC to pursue sellers who may be failing to declare additional income.
In recent years, a growing number of Brits have taken up side hustles, such as selling second-hand clothes, homemade goods or letting spare rooms. However, some may have failed to report earnings that should have been taxed.
The new rules will see details of income generated from these side hustles, as well as services such as taxi hire, food delivery and freelance work, submitted to and scrutinised by HMRC.
Prior to 1st January 2024, HMRC was able to request data from UK-based digital marketplaces, there was no requirement to routinely submit it to the tax authority.
The UK has signed up to the new rules via the Organisation for Economic Cooperation and Development (OECDOrganisation for Economic Co-operation and Development. The OECD is an international organisation that promotes economic growth, social progress, and environmental sustainability through data, analysis, and policy advice. It has 38 member countries and focuses on topics like climate change, artificial intelligence, and gender equality) and information gained through the new setup can be shared between all countries that have joined the scheme.
A spokesperson for HMRC said: “These new rules will support our work to help online sellers get their tax right first time. They will also help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers.”
However, online platforms will not be required to share data with HMRC relating to sellers who make fewer than 30 sales or £1,735 per year.
Why data is king for tax teams
The OECD rules, adopted by HMRC amongst others, reinforce the growing importance of data in modern tax reporting and filing.
Tax teams at all the UK’s major online platforms must ensure they have systems in place to extract and record sales data, as well as the ability to transfer information to HMRC.
It echoes the founding principles of one of the pillars of the European Union’s VAT in the Digital Age (VAT in the Digital Age) proposal, which seeks to update VAT rules for the platform economyThe platform economy is built upon the growing tendency for businesses - especially retailers - to use digital platforms and marketplaces to sell goods or services. Such platforms are underpinned by computer systems and allow companies to more easily reach and connect with prospective consumers with the intention of completing sales..
Under ViDAViDA or 'VAT in the Digital Age', is an EU initiative proposed by the European Commission that seeks to modernise and harmonise VAT processes for member states, by embracing new technologies. It is aimed at updating processes for the management of VAT, and reduce the VAT gap and fraud. The proposal also aims to address challenges in the area of VAT raised by the development of the platform economy., platform economy operators – such as those offering short-term accommodation and passenger transport – will be deemed responsible for collecting and remitting VAT when service providers do not.
This is designed to introduce a level playing field between online platforms and traditional sellers; while ensuring VAT collection is robust and reliable to enable maximum revenue generation.
Just as with the OECD scheme, digital platforms and marketplaces will be mandated to accurately and reliably record and process tax data if they are to achieve compliance.
