Tax on Reselling & Side Hustles

Most of us have sold something online using the likes of Ebay, Vinted or DePop. But do you know if you have to pay tax on the money you made?

UK tax rules on online selling, reselling or trading will depend largely on how active you are as a seller and how much profit you’ve made.

In this guide, we explain the tax rules you’ll need to be aware of when earning money from online sales.

 

UK tax rules on reselling

 

In January 2024, new rules were introduced requiring digital platforms to collect information on how much users make and to report this data directly back to HM Revenue and Customs (HMRC).

Even though the new reporting regime has been dubbed by the media as the new “side hustle” tax, no actual changes have been made to the existing tax obligations in the UK for people who use online marketplaces and nor has a brand new type of tax been introduced.

For those reselling online who are already declaring any earnings made and paying the tax on this, very little will change. However, for anyone who fails, where required, to file a tax return and/or to pay any tax owed for reselling online, they may soon fall under HMRC’s radar. The information provided to HMRC under the new reporting requirements should make it easier to detect those who are either mistakenly not declaring what they should or those seeking to evade tax. It will therefore be even more important for taxpayers to ensure that they are accurately reporting their income from all sources, including reselling online.

By law, anyone earning an income via self-employed means, either as their primary source of income or as a side hustle in addition to paid employment, are required to declare this income to HMRC by way of self-assessment and to pay tax on any profits made over the tax-free threshold. Equally, anyone making a profit on selling valuable personal possessions, again over and above the tax-free threshold, may have to pay tax if they make a gain.

 

Can HMRC access my online selling records?

 

Since 1st January 2024, digital platforms like eBay have been legally required to collect sales data to give to HMRC, including what someone has earned and paid in fees, so business sellers not paying taxes or masquerading as private sellers will soon be a thing of the past.

Previously, HMRC had been able to request seller data on an ad hoc basis but, under the new regime, a new digital reporting system has been implemented which automatically forwards the data to HMRC aimed at clamping down on undeclared side hustles and tax evasion.

The new rules that the UK has signed up to via the international body, the Organisation for Economic Cooperation and Development (OECD), will apply to any digital platforms that allow someone to sell goods and services online. This includes those that facilitate short-term property rentals, like AirBNB lets, as well as those that arrange private hire and food delivery. Those platforms affected will be required to pass on all relevant sales data collected by January 2025, thereafter sharing applicable data every January in accordance with an annual reporting obligation, for all income and information for the previous year.

Websites in any other countries that have signed up to the OECD rules, as part of a global effort to create more tax transparency in the digital economy, will also collect data on UK-resident sellers and share this with HMRC. In this way, information on income earned from reselling online will not only start to flow automatically, but globally. This means, for example, that if you are letting a holiday home abroad through a non-UK website, the data could make its way back to the authorities here.

Equally, if you fail to disclose that income by way of self-assessment, you may find yourself coming under close scrutiny, where checks will be made by HMRC to see if the sales data disclosed by websites corresponds with the sums declared in taxpayers’ self-assessments or whether tax returns have been filed at all.

 

How much can you resell online before you have to pay tax?

 

The rules have not changed on how much you can sell online before you have to pay tax, where the same tax-free tax thresholds remain in place as before. However, the new rules only require digital platforms to annually report a user’s sales to HMRC over clearly defined thresholds. The thresholds triggering these reporting obligations are either:

a. total sales within a single year (January through to December) equal to or more than €2,000 (approximately £1,740) after deducting fees and commissions or taxes, regardless of how many orders you have sold online

b. 30 or more sales transactions completed within a single year (excluding cancelled transactions), regardless of how much you have earned.

 

This new mandatory digital sales reporting should only affect seller accounts who pass either of the calendar year sales thresholds where, starting from January 2025, the previous year’s information will be reported to HMRC each January and a copy of the reported data will be provided to sellers. In reality, it is likely to be only a relatively small proportion of current digital platform-users who will trigger the reporting obligations. For those people simply selling off old clothes to make space in their wardrobe, or items originally bought at a higher price, should not be liable for tax on the monies made from these sales.

 

Do I have to pay capital gains or income tax?

 

Whether you are liable to pay capital gains or income tax, or liable to pay any tax whatsoever, will all depend on what you sell, how much you sell and how much profit you make from your online sales. This is because, in order to pay tax on the goods or services that you sell online, you either have to be classed as trading or making a capital gain.

If you are selling unwanted personal possessions, such as the contents of a loft or garage, it is unlikely that you will have to pay any income tax, where these types of sales will not typically be classed as “trading”. Equally, if you sell valuable possessions for more than you paid for them, such as collectibles, you will only have to pay capital gains tax if you exceed your annual allowance for such gains, which is from April 2023 is £6,000, reducing to £3,000 from April 2024.

In contrast, if you buy goods for resale with the intention of selling them for a profit, after fees and postage, then you are likely to be classed as trading and may have to pay tax on your profits. For example, if you have started regularly buying items from car boots and charity shops to sell on eBay, this is likely to be classed as trading and so the profits would be taxable. Similarly, if you are making goods with the intention of selling them for a profit, depending on how much you earn, you may again need to pay tax for selling goods online.

Even if you are only selling personal possessions, rather than trading, but you sell a valuable item or family heirloom for significantly more than the price paid for it, or its market value when you acquired it, this may be subject to capital gains tax. Possessions you may need to pay tax on include things like jewellery, paintings, antiques, coins and stamps, or other collections or sets of things. However, you only have to pay capital gains tax on the overall gain made above your tax-free allowance.

 

How much is my tax-free trading allowance?

 

Everyone has a tax-free trading allowance each tax year, which means that if your total income from trading or providing services online was less than £1,000 in any given tax year, before deducting expenses, you will not be required to pay any tax on your profits.

This means that those involved in hobby-selling, who may make a few sales with the intention of making a profit, albeit on a small scale basis, they will benefit from the tax-free trading allowance. Also known as the trading and miscellaneous income allowance, the £1,000 threshold is intentionally set low to include only occasional, low-profit sellers.

However, in addition to this £1,000 allowance, income tax is only payable on self-employed earnings of £12,570 or more, known as the standard personal allowance. This means that if you have no other source of income, you can earn up to £13,570 without becoming liable to tax on reselling online, although you may need to pay National Insurance Contributions.

Additionally, you can use the rent-a-room scheme if using Airbnb to offer accommodation in a room within your own home. This allows you to earn up to £7,500 tax-free. There is also a £1,000 tax-free property allowance available, and although this cannot be used in conjunction with the rent-a-room scheme, it can be used for a separate stream of property income. You can take advantage of both the £1,000 trading and property allowances, where applicable, although you cannot also deduct allowable expenses if claiming an allowance.

 

Will I need to file a tax return for reselling online?

 

Importantly, the rules relating to tax on reselling online and filing a return are different. As such, if you earn more than £1,000 in any given tax year (6 April through to 5 April), you will be expected to fill out a self-assessment return, even if there is no tax to pay.

If you are in paid employment, paying income tax and National Insurance by way of PAYE, it is highly likely that tax will be payable on any self-employed earnings made from running a side hustle, where this will need to be declared via a self-assessment return. This is because your £12,570 personal allowance is likely to have been used up on your salary.

However, even if you have no other source of income, with the ability to earn up to £13,570 without becoming liable to tax on reselling online, you must still file a return on anything over £1,000, unless you are only earning money from AirBNB lets within your home that qualify under the rent-a-room scheme. In this scenario, you will not need to inform HMRC if you earn less than £7,500, regardless of whether you are in paid employment or have other sources of income, although only £3,750 will be tax-free if you share this income.

 

How do I calculate how much tax I owe?

 

Calculating how much tax you owe can be complex, not least where you are in paid employment and have already exhausted some or all of your personal allowance.

Equally, if you are solely self-employed, such as a full-time business seller on eBay, you will need to assess your level of expenses to decide whether to apply the £1,000 trading allowance or calculate your deductible expenses for the relevant tax year instead. You will then need to discount your personal allowance from your taxable income, applying the relevant income tax rates to each applicable tax bracket. An additional calculation will also need to be undertaken to work out your self-employed National Insurance Contributions.

Fortunately, when completing your self-assessment online, provided you have complete figures of income to insert for the relevant tax year, as well as any expenses where you are not claiming the £1,000 trading allowance, a tax calculation will be automatically provided for you. In most cases, digital platforms should provide online sellers with a copy of the sales data submitted to HMRC to help them when completing their tax returns.

 

Penalties for failing to declare reselling earnings

 

From selling collectables on eBay to Airbnb lets, profits will now be under fresh scrutiny from the taxman, following a significant crackdown on income earned from online trading. This means that countless sellers who have never declared their income from these sites could soon be on HMRC’s radar and face the prospect of large bills or even penalties.

There is a useful online tool at GOV.UK to help digital platform sellers determine if they need to file a return for tax on reselling. However, if you are in any doubt about your tax obligations, or have never declared income via self-assessment and need to register, it is strongly recommended that you seek expert advice as soon as possible from a tax specialist.

 

Tax on reselling FAQs

 

Do I need to pay tax on everything I resell in the UK?

 

There are a few factors that determine if you owe tax on your reselling profits. If you’re simply selling unwanted items you already owned, like clothes from your closet or furniture from your home, you likely won’t owe tax. However, if you’re buying things specifically to resell for a profit, that’s considered trading and may be taxable. The UK government offers a Trading Allowance of £1,000 per tax year. This means if your total profit from reselling activities is below £1,000, you don’t need to declare it or pay tax. If you sell a single personal item for £6,000 or more (excluding cars), you might owe Capital Gains Tax on the profit.

 

How much tax will I pay on reselling profits?

 

This depends on how much profit you make and how you’re registered for tax purposes. If you’re reselling as a sole trader and your profits exceed the Trading Allowance, you’ll pay income tax on your net profits (profit minus allowable expenses). The exact rate depends on your income tax band. You typically only need to register for VAT if your turnover (total sales) exceeds £85,000 in a rolling 12-month period. However, registering for VAT can have advantages, such as reclaiming VAT you paid on business purchases.

 

Additional Resources

 

The UK government website offers specific guidance on “Selling online and paying taxes” . You can also find guidance from HMRC.

 

Legal disclaimer

 

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert professional advice should be sought.