Do I need to file a tax return if I sell my clothes online?

Certain digital platforms, such as Vinted, must start collecting a customer's name, address, bank account and total sales information from 1st January 2024 and report this information to HMRC (HM Revenue & Customs) from January 2025.

If you are not declaring or are under-reporting your income from these platforms, you may be impacted by these changes and will need to consider completing a tax return and potentially paying tax.

To determine whether you have anything to report, you need to decide if you have a trade. This is established by looking at what HMRC term the badges of trade and you must consider things like the volume of transactions and the way you carry out the activity.

If your annual income from your sales is less than £1,000, you may not need to report this to HMRC. This level of income, in some cases, may not meet the badges of trade criteria. You may also be able to make use of the £1,000 trading allowance. The trading allowance exempts trading or casual income of up to £1,000.

However, just because your income from digital platforms exceeds £1,000, this does not automatically mean you are trading and should report this to HMRC. For example, if you happen to buy a lot of clothes for your personal use which you ultimately sell on, the sales of these personal items should not generally be regarding as trading activity.

It remains to be seen how HMRC deals with a taxpayer who innocently fails to declare small amounts of income and how aggressive HMRC will be once it hold this information.

Although HMRC’s additional information gathering power doesn’t change the obligations taxpayers have, it does mean HMRC has far greater powers to check people are declaring their income. HMRC is expected to provide greater guidance to users of these sites, who will be worried they may have inadvertently broken the rules and landed themselves with a tax liability.

There is also concern that HMRC appears to be targeting individuals who are providing an environmentally sustainable service to the economy rather than targeting aggressive tax avoidance. While there may be some users of digital platforms who are trading, there will be many individuals on very modest income who only make a few pounds from these sites, who will be unnecessarily worried about these changes.

If you are affected, you must send a tax return to HMRC if in the last tax year (6th April to 5th April) you are trading and have income more than the available trading allowance. For online tax return submissions, the due deadline is 31st January following the end of the tax year. For example, for the tax year ending 5th April 2023, the online filing deadline is 31st January 2024.

Tax due on trading income is charged at your marginal income tax rate, and you may also need to pay National Insurance charges, dependent on the level of your trading income.

Date published 4 Jan 2024 | Last updated 4 Jan 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.

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