Whilst the growth of online platforms, which includes marketplaces such as eBay, Airbnb and Amazon, has helped boost the economy, it has also brought several challenges. HMRC asserts that a quarter of those who utilise the online platforms are unaware of their tax obligations. HMRC believes that more needs to be done to provide the necessary knowledge to these individuals and ensure everyone is tax compliant.
Whilst there are those who are unsure of their tax obligations a minority take advantage of the online platforms and use it as a means of evading paying their fair share of tax. HMRC is also looking at taking further steps to clamp down on this activity having previously targeted eBay traders who had not declared the correct levels of income.
HMRC has already begun work with online platforms to prevent VAT fraud and is working to develop a cooperation agreement. This will include the exchange of data between the platforms and, timely provision of evidence where there is non-compliance with VAT rules. HMRC plans to publish the list of marketplaces that have already signed up to the agreement with the scope to extend the agreement beyond VAT.
The government may also consider adopting a model of taxation similar to other European countries such as, France and Belgium. They tax this income in a different manner to conventional income, simplifying the process.
There is a fine line between whether regular selling of goods online is classified as a hobby or a trade. Individuals should review the ‘badges of trade’ which include factors such as frequency and motive (i.e. view to making a profit), to determine if the income received is taxable or not.
Not all users of digital platforms will have an immediate tax liability. For example, two £1,000 sharing economy allowances in relation to trading activities and property (e.g. renting out a room on Airbnb) came into effect from 5 April 2017. Income below £1,000 can be tax-free and does not need to be reported on the individual’s tax return, although it is necessary to keep records. Previously, HMRC should have been notified for every £1 of income received.
Individuals have until 8 June 2018 to have their say on the consultation document: The role of online platforms in ensuring tax compliance by their users.
If you are unsure of your current tax obligations, you can contact us for professional advice.