Online Selling Tax: What Sellers Need to Report to HMRC
Since 1 January 2024, digital platforms and marketplaces have been required to report information to HMRC about the sellers using their platforms. Sites such as Airbnb, Etsy, Vinted and eBay now report bank account details, information on total sales and more as part of the tax authority’s effort to reduce tax evasion.
Although no new tax rules were introduced, this so-called ‘side hustle tax’ has compliance implications for online sellers. Here’s everything you need to know.
HMRC reporting requirements
Digital platforms must collect and report details of sellers who make 30 or more sales a year and who receive at least €2,000 (around £1,700) for those sales in a year. This information must be submitted to HMRC by 31 January for the previous year; so for 1 January 2026 to 31 December 2026, the information must be reported by 31 January 2027.
If you are selling goods for a profit on one of these platforms and it is classified as trading, you will need to report your income and expenses to HMRC for tax purposes. Those who are selling personal items from their home will not need to report anything.
What is classified as trading?
To determine whether an activity is trading and subject to income tax and National Insurance Contributions (NICs), HMRC uses the ‘badges of trade’ test. The following criteria are assessed:
- Profit-seeking motive
- The number of transactions
- The nature of the asset
- Existence of similar trading transactions or interests
- The way the sale was carried out
- Interval of time between purchase and sale
Sellers who are deemed to be trading and making more than £1,000 a year are required to register with HMRC for self-assessment and submit an annual tax return.
Tax and NICs for online sellers
The changes to reporting highlight HMRC’s focus on ensuring online sellers know their tax responsibilities and pay the tax they owe. Failing to submit a Self Assessment tax return and pay tax on qualifying earnings can lead to penalties.
Trading online sellers whose profits exceed the trading allowance of £1,000 are subject to Income Tax and NICs on their profits. In order to reduce this, they can deduct certain business expenses such as business rates, energy costs, software expenses and business travel costs.
Those with self-employment profits of £7,105 or more a year are treated as having paid Class 2 NICs to protect their right to the state pension and contributory welfare benefits. If profits rise to above £12,750, Class 4 NICs must be paid at a rate of 6% on profits on earnings of up to £50,270.
HMRC record keeping requirements
Online businesses must keep digital records of transactions in order to avoid facing fines. Bank statements, sales invoices, purchase invoices and petty cash records must all be retained for at least five years after the 31 January self-assessment deadline for the relevant tax year. If HMRC checks your tax return, they may ask to see the documents.
Limited companies and VAT registered businesses must keep records for at least six years from the end of the accounting period they relate to.
Online selling and tax obligations
If you’re unsure whether you are required to pay tax on your online sales, or you need help to register for Self Assessment, speak to a reputable accountant for advice.
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