Who wins now side-hustle data goes direct to HMRC?by
New reporting rules mean that eBay, AirBnB and other online businesses will soon be spilling the beans on sellers to HMRC. This could be bad news for accountants and their clients.
Many hungover readers will have noticed that, along with all of those already-forgotten resolutions, New Year’s Day welcomed a big tax story.
As a result of legislative change to incorporate the Organisation for Economic Co-operation and Development’s model reporting rules, with effect from 1 January 2024 businesses across the world are now obliged to notify tax authorities of activity, although the first reports will not need to be filed for a further year.
Translated into simple language for the media, early risers were informed that, in future, their eBay sales activity would be reported directly to HMRC, prompting a suitably scary news story. The message that most would have taken away is that if they sell anything on eBay or any of its competitors or let their home out on AirBnB, the taxman will be coming. There was hope in the additional information that you could make up to £1,000 without worrying.
While some of the headline information was accurate, a degree of fact-checking is in order, since drilling down will demonstrate that some of it must be taken with a pinch of salt.
To start with, this is not a change to tax legislation. If people are liable to tax on income from sales or services that will now be reported to HMRC, they were equally liable in the past.
This could clearly present problems to those who have not declared any income, not to mention professionals who failed to inform them of the need to do so.
Whether returns are awaiting submission during January or have been filed long ago, some of us may feel the urgent obligation to remind clients that declaring all income is compulsory.
On the face of it, the news that clients might have additional concerns around their tax returns should be good news for accountants. In reality, when so many of us charge fixed fees for preparing self assessment returns, the truth might be somewhat different.
This is one of those situations where extra work will be required but clients might, perhaps naturally, expect that the fixed fee will remain fixed.
That doesn’t mean accountants can escape their responsibilities and many should now be contacting clients to remind them of their obligations to declare what might be described as casual earnings in addition to everything that has previously been included on returns.
The news stories were also suitably vague when it comes to the difference between trading and clearing the decks as well as the £1,000 exemption. To start with, many would have come away with the impression that this related to what accountants refer to as turnover. In fact, the true measure is profit.
That could be helpful, since in many cases those selling goods on eBay will actually be dispatched at a loss. A couple of examples should aid understanding.
If you purchase an expensive wedding dress on the internet and decide that you only need it the once, the likelihood is that offloading it via eBay will not generate a profit.
On the other hand, if you spot an unbelievable bargain in the post-Christmas sales and buy 50 frying pans for a song then sell each at a 500% profit, that is undoubtedly trading and must be declared in the same way as any profit from an AirBnB letting (subject to any rent-a-room relief).
The £1,000 allowance
The £1,000 exemption also bears deeper consideration. On the plus side, since 2017 individuals have been entitled to take an allowance of £1,000 each from trading profits and net property revenues.
This should prevent many from facing a liability. Technically though they are still obliged to declare the income if turnover (not profits) exceeds £1,000. If this would not lead to a tax liability – for example where all income is covered by the personal allowance – it is still possible to inform HMRC and request that they do not issue a tax return.
Another problem could arise where someone is already in business. They would expect to use up their £1,000 allowance carrying out their primary trade, which automatically means that even £1 of profit from an online sale would be subject to tax.
All in all, this is a bit of a minefield. Many might take the view that HMRC has long been unable to deal with excessive workloads and receiving tens of millions of additional pieces of data will add so much to the burden that it will never get round to reviewing all of the supplementary information.
Some at the Revenue might also be less than enthusiastic about one consequence of this change, which could be a large increase in the number of returns filed, without necessarily leading to a noticeable increase in the overall tax take.
Perhaps the greatest danger will come if their computer systems are able to compare information supplied by eBay, AirBnB and so on with returns and launch an automatic query having spotted big holes in tax returns.
Time will tell, but this could be another big headache, primarily for small practitioners and their clients.