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A screenshot of popular online shopping apps such as ebay| AccountingWEB| ‘Side-hustle tax’ is much ado about nothing
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‘Side hustle tax’ is much ado about nothing

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Emma Rawson takes a look at how the introduction of new reporting rules for digital platforms led to confusion and consternation amongst online sellers.

11th Jan 2024
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The first week of 2024 was an unexpectedly busy time for tax news, with new reporting rules for digital platforms widely – and wrongly - reported as a new tax on ‘side hustles’. This misinformation was then amplified on social media, causing many individuals to unnecessarily worry that they could end up with a tax bill. 

So what is actually happening, what went wrong and what can we learn from the whole episode?

The new reporting rules

As Philip Fisher discussed in his article earlier this month, from 1 January 2024, digital platforms will have to make annual reports to HMRC about those who sells goods or services through them.

For these purposes, a digital platform is any website or app that facilitates transactions between sellers and their customers. This can include individuals selling goods on eBay, Etsy, Vinted etc. but also those providing services or letting out property.

The rules are part of a global initiative by the OECD. In the UK, platforms will be required to report information to HMRC on all registered sellers, except those with fewer than 30 transactions a year and earning no more than 2,000 euros. Information to be reported will include the identity of sellers, as well as what they have earned and their bank account details.

A tax on side hustles?

Misleading reporting - including by some major outlets - resulted in these reporting rules being badged as the introduction of a new ‘side hustle tax’. Concerned individuals took to social media to ask whether this meant that they would have to pay tax when selling their second hand clothes or clearing out the attic. Others complained that the situation was unfair and could amount to double taxation.

There is, however, no new tax on side hustles (and no plans to introduce one). The platform reporting rules will provide a significant amount of extra information to HMRC, but there is no change to the underlying rules as to when individuals selling online are subject to tax. 

Instead, to determine if online sales can lead to a tax liability we need to go back to first principles and ask is there a trade? AccountingWEB readers - unlike many journalists and social media commentators - will be familiar with the badges of trade. Without getting into the details, selling unwanted personal possessions is unlikely to constitute a trade. However, individuals who are buying or making things with a view to selling them for a profit are likely to be trading.

Even if there is a trade, tax will only be payable if a profit is made. The trading and property allowances also allow taxpayers to earn up to £1,000 a year of gross income before any tax becomes due. As a result, many platform sellers will never have to worry about their activities creating a tax liability.

In an attempt to dispel the myths about the new ‘side hustle tax’ and reassure sellers, tax experts took to social media, radio and TV. The ATT and the Low Incomes Tax Reform Group (LITRG) published explainers covering what the new rules do (and don’t do), and HMRC also quickly published a new information sheet on selling online and paying taxes.

What can we learn from this?

January can be an odd month for news, but I don’t think many would have expected an OECD-led reporting initiative to cause such a splash.

Inaccurate reporting of the new changes was undoubtedly a driver. It seems that many journalists are unfamiliar with even the basics of taxation, and will naturally go for an exciting attention grabbing headline over the rather more dull truth.

Social media also played a role. As well as quickly spreading the myth of a new ‘side hustle tax’, some truly terrible advice cropped up - for example, suggesting that sellers might be entitled to loss relief if they sold personal possessions for less than they paid for them.  A reminder, if one were needed, why we should never take tax advice from social media.

Another issue brought into focus is the low level of tax knowledge amongst the general public. Whilst this is unfortunate, it is perhaps unsurprising. For many individuals their only interaction with the tax system is seeing amounts deducted from their payslip each month under PAYE. This, combined with a fear of getting things wrong and being pursued by HMRC, can lead to unnecessary worries. 

Hopefully the combined efforts of the tax profession and HMRC have now put this story to rest.  However, we should all be aware of the problems misreporting and miscommunication can cause when it comes to tax.

Replies (11)

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By Justin Bryant
11th Jan 2024 15:57

Aweb peeps ain't as bright as you might think re such things. For example, I once saw someone here say a footballer should perhaps charge VAT when selling an old football shirt for a huge amount.
https://www.accountingweb.co.uk/any-answers/i-was-thinking

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Replying to Justin Bryant:
By Ruddles
11th Jan 2024 17:22

Really?

I do hope that your comment, like the one linked to, was made with your tongue firmly in your cheek.

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Replying to Ruddles:
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By Justin Bryant
12th Jan 2024 08:56

Yes; just teasing (but only slightly - as if he sold personally as a one-off on eBay etc. I cannot see how that's VATable, as with Antique Roadshow peeps per the link, who should be more concerned with CGT/IHT).

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By FactChecker
11th Jan 2024 18:40

See also from over a week ago ...

https://www.tax.org.uk/litrg-there-is-no-new-side-hustle-tax-say-tax-exp...
+ https://www.accountingweb.co.uk/community/blogs/philip-fisher/who-wins-n...

BTW the "misleading reporting" isn't just the fault of lazy or poorly informed journalists, it was part of a deliberate ploy by HMRC (to use those outlets as a free 'nudge' service during a quiet time for News and general PR) ... whilst allowing them to maintain professional 'deniability'!

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Replying to FactChecker:
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By Amy Chin
11th Jan 2024 19:53

Yes, Emma references Philip's article in the above as well as linking to the ATT and LITRG explainers.

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Replying to Amy Chin:
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By FactChecker
11th Jan 2024 22:13

OK, apologies (I find those 'underscores' harder to see than an overt direction).

But my main point wasn't a critique of Emma (or of the article) ... it was forlornly trying to draw attention to how HMRC have manipulated the general media into doing their work (of promoting F.U.D.) for free.
Only a few minutes ago, my Microsoft 'news feed' decided to highlight (amongst its horrible list of clickbait listicles) an item from Elle magazine (why in my list?) headed "Agony over new side hustle tax"!

HMRC *want* that story out there (because they have neither the systems nor resources to trawl all the data, so rely on the frightened turning themselves in).
But they want plausible deniability for themselves (to retain the professional facade) so ... they first 'leak' the message at a quiet news time to the wider (non-specialist) press, then more quietly brief the institutes (and Aweb) about how the press have got it wrong!

Or to put it more simply ... the Aweb audience is not who need to be disabused of the notion that there's a new tax, it's the mainstream & local media (who I suspect increasingly don't care as long as it fills space without cost).

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Replying to FactChecker:
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By FactChecker
15th Jan 2024 12:04

So it looks like HMRC have finally found something in which they excel ... even if it's only winding up the general populace via gullible mainstream media!

Now they've even 'hooked' the Guardian - who have this article headline:
‘A sledgehammer to crack a nut’: readers voice fears at HMRC crackdown on ‘side-hustles’

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By listerramjet
12th Jan 2024 10:09

Very few understand the UK tax system. Politicians certainly don’t! The real issue here is HMRC and information. The whole basis of the requirement goes against our common law tradition. And guess who picks up the tab for this information overload!
The press reported on the idea that people selling their chattels online will get a tax bill. Notwithstanding the legal position this is a very real possibility.

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By RogerMT
12th Jan 2024 10:11

Given that HMRC don't have the staff to run their "services" as it is, what do we expect them to be able to do with all this new information provided by the likes of eBay? Very little, or nothing is my guess.

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By Mr J Andrews
12th Jan 2024 13:56

Meanwhile , the real Black Economy flourishes.

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