In light of the current cost of living crisis, many individuals, have turned to side hustles such as selling garden products on platforms like Amazon and eBay. However, this entrepreneurial initiative has led to receiving unexpected correspondence from HM Revenue & Customs (HMRC), specifically letters inquiring about sales on online marketplaces. HMRC’s initiative to reach out stems from their possession of third-party information, which has enabled them to identify individuals who might not have fully disclosed their income from such digital sales. The letter, which includes a certificate of tax position, demands recipients to validate their income and potentially update their tax details, emphasising HMRC’s effort to ensure people are paying the correct amount of tax and bring their tax position up to date.
If you regularly sell goods or services through an online marketplace HMRC might consider that you are ‘trading’ and, depending on the amount of money you make, you might need to pay income tax and National Insurance contributions on your profits.
When you receive a letter from HMRC
If you have received such a letter it is important to:
- Respond to HMRC by the date stated on the letter (usually within 30 days of the date HMRC issued the letter), even if you do not have any income to tell them about. HMRC have information that shows you may have earned money from selling goods and/or services through an online marketplace, such as Amazon or eBay. They have obtained information from third parties and carried out risk assessments. The information and risk assessment show you may not have told HMRC about all of your income. This means that your tax position may be wrong or that you may not have paid enough tax.
- Check your previous tax returns to ensure that they are complete and correct to the best of your knowledge and belief. In particular, you should check that you have included all the income you have earned from trading through online marketplaces and deducted all the allowable expenses you have incurred. You might be able to make use of the £1,000 trading and miscellaneous allowance if your gross income from trading through online marketplaces is less than £1,000. This will depend on whether you have any other sources of self-employment, casual or miscellaneous income.
Undisclosed income information
If you need to tell HMRC about income that you have not disclosed to them, the letter tells you to use the online Digital Disclosure Facility or Disclosure Service to do this. You need a Government Gateway user ID and password to use the Digital Disclosure Facility. If you do not already have a user ID, you need to create one. You can do this by registering for HMRC online services.
If you check your tax returns and you are confident you do not have undisclosed income that you need to tell HMRC about, including the case where all of your undisclosed income (and any other trading and miscellaneous income that you have disclosed) is covered by the trading allowance, you should contact HMRC to let them know.
If you do not respond to HMRC’s letter they are likely to follow up. They will probably send you another letter in the first instance. If you fail to respond, HMRC may decide to open a compliance check into your tax return if you have submitted one. If you have not completed a tax return, they could issue a notice to file a tax return or issue an assessment.
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