![Man sat at a desk surrounded by boxes](https://assets.taxassist.co.uk/file-uploads/gcs/1727884820_adobestock-483267987-online-seller.jpg)
Article
Tax obligations for online sellers
New rules requiring online platforms used by sellers to report information about their users to HM Revenue and Customs highlight the need for online sellers to understand their tax obligations. This guide outlines what you need to know.
By Dan MartinRules introduced on 1st January 2024 require digital platforms and marketplaces, such as Airbnb, Etsy, Deliveroo, Uber, Vinted and Fiverr, to report information about sellers using their platform to HM Revenue & Customs (HMRC). Details such as bank account information and total sales are among the data that must be reported.
The change is part of HMRC’s clampdown on tax evasion and the Government signing up to new rules from the Organisation for Economic Co-operation and Development (OECD).
Although the new requirements have been dubbed a ‘side hustle tax’, no new tax rules have actually been introduced. However, the changes do highlight the need for online sellers to understand their tax obligations.
New HMRC reporting requirements
Under the new rules, digital platforms must collect and report to HMRC the details of sellers who:
- make 30 or more sales a year
- receive at least €2,000 (around £1,700) for those sales in a year
Platforms must submit the details to HMRC by 31st January for the previous year. This means that information for 1st January 2024 to 31st December 2024 needs to be reported by 31st January 2025.
The HMRC reporting requirements apply to those sellers who are selling goods for a profit and are classified as trading. Some online sellers, such as those selling personal items from their home, will not need to report anything to HMRC for tax purposes.
This guide focuses on those sellers who are classed as trading.
What is a trade?
The new HMRC platform reporting requirements and tax paying obligations apply to those online sellers who are classified as trading.
Badges of trade
To work out whether an activity is trading and subject to income tax and National Insurance, HMRC uses the ‘badges of trade’ test. This consists of criteria including:
- Profit-seeking motive
- The number of transactions
- The nature of the asset
- Existence of similar trading transactions or interests
- The way the sale was carried out
- Interval of time between purchase and sale
Trading online sellers making more than £1,000 a year are required to register with HMRC for self-assessment and submit an annual tax return.
You need to register for self-assessment by 5th October after the end of the tax year in which you started trading. For example, if you started trading on 1st July 2024, the end of the tax year is 5th April 2025 and the deadline for the 2024/25 tax year is 5th October 2025.
Implications of changes to reporting for online sellers
Although the HMRC reporting requirements introduce no new tax obligations, they highlight HMRC’s strong focus on ensuring that everyone pays the tax that they should, and the need for online sellers to know their tax responsibilities.
Failing to submit your tax return and not paying your tax on time can lead to penalties.
Working with a professional accountant will ensure that you fulfil your tax obligations, and you are not hit by fines.
Tax and National Insurance Contributions (NICs) for online sellers
Trading online sellers are subject to income tax and National Insurance. All businesses are eligible for the trading allowance. The trading allowance is a tax exemption of up to £1,000 a year.
Income tax
The income tax rates for sole traders in England, Wales and Northern Ireland are:
- Personal allowance (up to £12,570): 0%
- Basic rate (£12,571 to £50,270): 20%
- Higher rate (£50,271 to £125,140): 40%
- Additional rate (over £125,140): 45%
In Scotland, the rates are:
- Personal allowance: (up to £12,570): 0%
- Starter rate (£12,571 to £14,876): 19%
- Basic rate (£14,877 to £26,561): 20%
- Intermediate rate (£26,562 to £43,662): 21%
- Higher rate (£43,663 to £75,000): 42%
- Advanced rate (£75,001 to £125,140): 45%
- Top rate (over £125,140): 48%
To reduce the tax you need to pay, you can deduct certain business expenses to decrease your trading profit.
Expenses you may be able to claim include:
- Business rates
- Building insurance
- Energy costs
- Office costs such as stationery and phone calls
- Subscriptions and memberships
- Training courses
- Software costs
- Bank charges, overdraft and credit card fees
- Business travel costs
- Working from home costs
National Insurance Contributions (NICs)
If your self-employment profits are £6,725 or more a year, you need to pay Class 4 National Insurance Contributions (NICs). While you will be eligible for Class 2 National Insurance Contributions, you may be treated as having paid Class 2 NIC.
In the 2024/25 tax year, you pay 6% on profits of £12,570 up to £50,270, and 2% on profits over £50,270.
If your profits are less than £6,725 a year, you can choose to voluntarily pay Class 2 NICs if you have gaps in your National Insurance record.
The importance of record keeping
Record keeping for online businesses is vital. Failure to keep sufficient records can result in fines, or even disqualification as a company director.
HMRC record keeping requirements
If you are self-employed, you must keep records about your business' income and costs for five years after the 31st January self-assessment deadline for the relevant tax year. If HMRC checks your tax return, they may ask to see the documents. You can find out more in our guide to how long to keep tax records.
The records you are required to retain include business bank statements, sales invoices, purchase invoices and petty cash records.
VAT registered businesses must keep VAT records for at least six years.
Limited companies are required to keep records for six years from the end of the accounting period they relate to. This includes details about the company itself, and financial and accounting records.
Employers must keep PAYE records for three years from the end of the tax year they relate to.
Keeping records is important for compliance with the Government’s Making Tax Digital (MTD) rules. As well as keeping digital records, certain businesses must also use MTD-compatible software (such as Quickbooks and Xero), and submit quarterly updates to HMRC.
Understanding VAT obligations
Some online sellers may be subject to Value Added Tax (VAT). If it applies to your business, you must add VAT to your sales and can recover input VAT on purchases.
VAT registration
The current VAT threshold is £90,000. This means that you must register for VAT if you are making taxable supplies and your taxable turnover for the last 12 months exceeds £90,000, or you expect your turnover to exceed £90,000 during the next 30 days.
Once registered, you need to submit a VAT return to HMRC at least every three months. Your VAT return outlines how much VAT you have charged (output VAT) and how much you have paid to other businesses (input VAT) and calculates your VAT liability or refund.
It may be beneficial to your business to voluntarily register for VAT even if your turnover has not reached the threshold. Speak to your accountant for advice.
If you are VAT registered and your VAT taxable turnover does not exceed £150,000, you can register for the VAT flat rate scheme. The main benefit is that it makes the record-keeping for your VAT return easier. Contact your accountant for advice.
VAT changes to Amazon fees
Since 1st August 2024, local VAT rules apply to Amazon fees. This means that UK businesses selling on Amazon are charged the standard 20% VAT rate on fees.
If your business is VAT registered, you can recover the VAT through your VAT return.
For more advice, contact your accountant.
Incorporation and Corporation Tax
Many online sellers are registered as sole traders, but it may be appropriate for you to incorporate as a limited company.
Business structure
A sole trader, the simplest way to start a business, is a self-employed individual trading as a business. The individual and business are one entity, so the sole trader has unlimited liability for the business’ debts.
A limited company involves much more paperwork and responsibilities, but it is a separate legal entity which means the owners are not personally liable for business losses.
The best option for you depends on your circumstances. Read the pros and cons for each here.
How TaxAssist Accountants can help your online business
TaxAssist Accountants can help to support your online business. We can assist with taxes, accounting, bookkeeping, payroll, and connecting you with other providers we work with.
Contact us to learn more about our services and to book a free initial meeting.
Frequently Asked Questions
The deadline for completing a self-assessment tax return is 31st January, when completing this online. If you want to submit a paper tax return, the deadline is 31st October.
There are lots of benefits to getting ahead with your tax return, to find out more look at our content hub.
A VAT Registration Number is mandatory for businesses exceeding the VAT threshold. It uniquely identifies a business for VAT purposes and must be included on all VAT invoices and returns. To obtain a VAT Registration Number, businesses need to apply through Revenue and provide necessary details about their operations.
If a business's turnover exceeds €80,000 (for businesses supplying goods) or €40,000 (for businesses supplying services only) it must register for VAT.
Budget 2025 announced a change to the VAT thresholds. For those selling products the new cut off point is €85,000 and for those delivering services it is €42,500. The new thresholds come into effect from 01 January 2025.
Self-employed individuals, partners in business partnerships, landlords and individuals earnings over £150,000 may be required to file a tax return. Those in receipt of child benefit and earning over £60,000, or higher rate taxpayers earning interest income over £500 may need to complete a tax return too. For a comprehensive list check HMRC’s content on who must send a tax return.
You can contact HMRC online using their digital assistant.
To contact HMRC by telephone, call 0300 200 3410 and be sure to have the company's 10-digit Unique Tax Reference (UTR) ready.
You can write to HMRC at the following address, always include the company’s 10-digit UTR in correspondence.
Corporation Tax Services,
HM Revenue and Customs,
BX9 1AX
United Kingdom
You can file a Form 11 tax return yourself with Revenue online using Revenue Online Services (ROS) or you can engage an accountant to file on your behalf.
Date published 2 Oct 2024 | Last updated 3 Oct 2024
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.![](https://ta-support.nyc3.cdn.digitaloceanspaces.com/head-shots/uploaded/1700476376_dan-podcast-image.jpg)
Dan Martin
Dan is a freelance journalist and event host who writes content for TaxAssist Accountants. With 20 years of experience, he has interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind the newest start-ups. Dan was previously Head of Content at small business membership organisation Enterprise Nation.
Choose the right accounting firm for you
Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?
Local business focus
We specialise in supporting independent businesses and work with 100,000 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.
Come and meet us
We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 409 locations, meet with us online through video call software, or talk to us by telephone.
Switching is simple
Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.