HMRC Increases Scrutiny of Online Earnings, Raising Concerns Over Tax Return Accuracy

HM Revenue & Customs (HMRC) is intensifying its focus on “side hustle” earnings, requiring online platforms like eBay, Vinted, and Airbnb to submit income data for 2024 by the end of January. However, concerns have been raised that the discrepancy between the UK’s tax year, which runs from April to April, and the OECD’s calendar year reporting period could lead to mistakes on tax returns.

The Low Incomes Tax Reform Group (LITRG) has warned that the calendar year data provided by online platforms could cause confusion for casual sellers, especially those filing their tax returns for the first time. Meredith McCammond, a technical officer at LITRG, explained that only earnings from January to March 2024 would be relevant for a self-assessment due this year, yet platforms will report the entire 2024 calendar year, which could lead to inaccurate figures.

“Just one quarter of the data people will receive is pertinent to the current tax return,” McCammond said. “That could lead to confusion, especially for first-time filers during HMRC’s busiest period.”

Under the new rules, users earning over £1,700 or completing 30 transactions in a year will have their income information shared with HMRC. While this is not a new tax, it may cause some individuals who were unaware of the reporting requirements to face unexpected tax bills. Dawn Register, a tax expert at BDO, warned that even if the data provided is incomplete, HMRC could still launch an investigation if a seller’s turnover appears unusually high.

“The new rules may well mean there are some nasty surprises for people who are either unaware of the existing legislation or haven’t declared their earnings,” Register noted.

However, many casual sellers will remain unaffected by the changes due to the UK’s £1,000 trading allowance, which exempts individuals from paying tax on occasional trading income. HMRC spokesperson emphasized that the new rules primarily target those engaged in consistent trading or making significant gains from sales.

Miruna Constantin, a tax expert at RSM UK, noted that there had been public concern when the reporting procedures were first introduced last year. “Chaos ensued when people feared HMRC would suddenly tax all their earnings from selling unwanted Christmas gifts,” Constantin recalled. “HMRC has since provided detailed guidance.”

To avoid errors, experts advise sellers to carefully match their platform statements with their tax obligations, particularly by paying attention to dates, allowances, and potential capital gains. If unsure, sellers are encouraged to seek advice from HMRC or a tax professional.

While the government hopes the expanded reporting will reduce accidental non-compliance, sellers still face the risk of “nasty surprises” if they fail to fully understand the reporting process.