If you're about to embark on a frenzied wardrobe clear-out with an aim to sell what you no longer need on a resale app, new tax laws have just been introduced that mean, instead of pocketing the proceeds without a second thought, HMRC could be informed by the online marketplace you've used if you make more than a certain amount.
As of New Year's Day, there is a legal requirement for most online marketplaces - such as Vinted, eBay, Etsy or Vestiaire Collective - to collect information about relevant sellers each year to share with the relevant authorities.
According to Vinted, 'relevant sellers' include sellers who make 30 or more transactions on Vinted, or sell more than €2,000 worth of items during the year, which will most likely only apply to a small percentage of the app's users.
Although you might have seen posts about the new tax laws on social media, with people begrudging the end of their so-called 'side hustle', there aren't actually any changes to tax rules for people who use online marketplaces, according to HMRC. On its information sheet, HMRC clarifies that you will only be liable to pay income tax on your earnings via an online marketplace if you make more than the tax-free allowance of £1,000, which has been in place since 2017 for people who sell with a view to making a profit.
What Is Classed As An Online Marketplace?
According to HMRC: 'For tax, an online marketplace is any website or mobile phone app that handles and enables the sale of goods and services from individuals and/or businesses to customers.'
As well as the resale apps listed above, this includes rental platforms where you loan out your clothes for a daily fee like By Rotation, My Wardrobe HQ and HURR. And speaking of rental, if you occasionally let out your spare room to make a bit of extra money on Airbnb, you are entitled to pay tax if you're pocketing more than £1,000 a year.
How Do I Know If I'm Classified As A 'Trader'?
HRMC has provided information about different scenarios where you might need to pay tax as a result of online sales, including selling unwanted items that you've found in your attic and selling homemade cards. The best thing to do if you're unsure is firstly to check the guidance on gov.uk, as well as reading the government's information about tax-free allowances on trading income. If you are a trader who makes more than £1,000, you will have to register for Self-Assessment, which will allow you file a tax return.
What Has Vinted Said About The New Tax Laws?
Adam Jay, chief executive of Vinted, reassured users of the second-hand app. Speaking to the BBC, he said: 'It's actually quite a small proportion of users of our platform who will trigger this threshold where we need to provide information. It's only those people who are making a profit from selling second-hand items that might be eligible for tax and then it's about their own personal tax situation what tax would ultimately be due to HMRC,' he said, adding: 'We'll be actively reaching out to those sellers explaining what the new requirements are why they exist.'
What Has Been The Reaction On Social Media?
One opinion on social media is that it seems rather unfair to penalise those who are essentially making a bit of extra money through side hustles while not closing other loopholes at the same time. As Jemma Forte put it: 'When it comes to going after ordinary ppl trying to make a few bob, the govt really know how to be efficient. Millionaire’s loopholes. Not so much.'
What Counts As Expenses When You're Selling On A Resale App?
According to HMRC, you can claim what's known as 'allowable business expenses' on goods for resale, raw materials and direct costs from producing goods, which won't be applicable to the vast majority of people who are reselling their old clothes on resale apps.