New research reveals HMRC now holds the details of 2.6 million online sellers, nearly six times the 450,000 people it had on its list a year ago. The sharp increase means millions could face significant penalties if they have not registered for the correct taxes.
Chartered accountants and business advisors Lubbock Fine issued the warning after the number of individuals HMRC knows are selling goods through platforms like eBay, Vinted and Etsy jumped dramatically over the past year. The data covers people making money from a side hustle in selling goods online.
VAT registration threshold and penalties
Jaspal Dhillon, Head of VAT at Lubbock Fine, says that people who regularly sell goods through these platforms should register with HMRC when their turnover exceeds £90,000 a year. If they do not register for VAT, they can face a penalty that can escalate to 15% of the VAT owed.
Rules that came into force last year require platforms to inform HMRC about their sellers and how much money they made. HMRC now receives data about every seller who made 30 sales or £1,700 on any platform in the past year.
What online traders need to know
Dhillon said: “Many online traders think that because they aren't making much of a profit then they don't have to worry about taxes but VAT is based on turnover and not profits.”
“HMRC now knows much more about online sellers than ever before. If you’re online trading business is approaching the VAT threshold, then there is a good chance HMRC already knows who you are and how much you have turned over.”
Dhillon went on: “The penalties for not paying VAT when it’s owed can be very unpleasant.”
Possible extension of platform responsibility
HMRC recently held a consultation on making retail platforms themselves responsible for collecting and paying VAT on behalf of sellers, something they have done for overseas sellers for several years. That approach has generated £1.8 billion per year in VAT for HMRC, leading to it propose extending that rule to all sellers.
