HMRC targets online sellers and content creators/influencers
Our founder has over 20 years’ experience working in HMRC as well as having professional tax qualifications. All of our staff have either HMRC or an accountancy background.
These well planned efforts will target either “influencers” who profit from producing digital material or people who sell goods on online marketplaces. HMRC is now sending nudge letters to people it feels have neglected to register income from these sources since more people are now making a life online since the Covid lockdown. The situation will need to be thoroughly investigated before responding to HMRC if you or one of your clients receives a letter of this nature.
What UK tax am I required to pay on online income?
Digital marketplace sales
A digital marketplace refers to an online platform that facilitates transactions between buyers and sellers, such as eBay or other similar platforms. Individuals who are UK residents and engage in trading activities on these digital marketplaces are required to report their worldwide sales to HMRC (HM Revenue and Customs) and pay income tax on the profits derived from those sales. Similarly, UK resident companies are subject to corporation tax on their worldwide sales, including those made through digital marketplaces.
HMRC receives sales information from digital marketplaces and compares it to the tax returns submitted by individuals and companies. This allows them to identify any potential discrepancies or instances of non-compliance. It is important for individuals and companies involved in online trading activities to accurately report their sales and income to HMRC to ensure compliance with tax obligations.
Digital content earnings
With the rise of digital content creation and influencer marketing, many individuals now earn income through various online platforms such as YouTube, TikTok, Instagram, and OnlyFans. This income can come from sources like advertising revenue based on content views, sponsored collaborations, brand partnerships, or subscription fees for access to exclusive digital content.
It’s important to note that individuals who are UK residents and engage in these online activities as a trade are required to declare their profits to HMRC and pay income tax on their earnings. The income generated from these digital activities is considered taxable, similar to any other form of self-employment or business income.
To ensure compliance with tax obligations, it is advisable for individuals involved in earning income through digital content creation and influencing to keep track of their earnings, maintain accurate records, and report their profits to HMRC in their tax returns.
Frequently Asked Questions
Not everyone selling items online will necessarily consider themselves as engaging in a trade. Some individuals may be selling items as a one-time or occasional activity, clearing their loft, or pursuing a hobby in their spare time.
HMRC applies a set of tests, commonly referred to as the “badges of trade,” to determine whether an activity should be considered a taxable trade rather than just a hobby. These tests take various factors into account, including the frequency of sales, intention to make a profit, level of organisation, and involvement in the activity. If an individual consistently engages in selling items online with the intention of making a profit, HMRC is likely to consider it a trading activity for tax purposes.
It’s worth noting that there is currently a tax-free trading allowance of £1,000 per tax year in place. This means that if an individual receives more than £1,000 per year from any trading activity, they should review their position and consider whether they need to declare the income and pay tax on the profits earned.
Individuals who exceed the £1,000 trading allowance or engage in trading activities on a larger scale should consider seeking professional tax advice or consulting the official HMRC guidelines to ensure they meet their tax obligations and understand any reporting requirements.
HMRC reviews data from digital marketplaces and online content platforms to identify individuals who may have failed to report their online earnings. If HMRC believes that an individual has not reported their online earnings, they may initiate contact by sending a letter commonly referred to as a ‘nudge’ letter. This letter aims to remind and prompt individuals to review and correct their tax position regarding their online earnings.
The ‘nudge’ letter may include a Certificate of Tax Position, which serves as a summary of the information HMRC holds about the individual’s potential tax liabilities based on the data received from digital marketplaces and online content platforms.
Receiving a ‘nudge’ letter and Certificate of Tax Position does not necessarily mean that an individual is being accused of deliberate tax evasion or non-compliance. It is intended to encourage individuals to review their tax affairs and ensure that they have correctly reported and paid the appropriate taxes on their online earnings.
If an individual receives such a letter, it is important to carefully review the information provided and take appropriate action. This may involve assessing the accuracy of the data, reconciling it with their own records, and making any necessary amendments to their tax returns.
If you receive one of these letters, contact Lexicon Tax on 01144 000192 to arrange a completely free no obligation and confidential initial consultation. We have ex HMRC staff who are experts in dealing with HMRC disputes and disclosures.
There is no statutory requirement to complete a Certificate of Tax Position. However, it is crucial not to ignore these letters as HMRC may initiate further action if no response is received, which could potentially lead to an investigation.
If a disclosure is necessary, it’s important to handle it carefully and respond within the stated deadline. By proactively making a disclosure, you can have more control over the process and potentially reach a settlement more quickly than if HMRC were to initiate an investigation. This allows you to determine the potential lost revenue, explain the behaviour that led to non-compliance, and assess the level of tax-geared penalty involved.
If you were aware of your obligation to declare online earnings but consciously chose not to do so, or if you later discovered the non-compliance but still did not rectify the situation, HMRC’s Code of Practice 9 (COP9) Contractual Disclosure Facility may be the most suitable course of action to ensure comprehensive protection. We can provide guidance on navigating the COP9 process and ensuring that you approach HMRC in the most appropriate manner.
Our Tax Investigations and Dispute Resolution team has a strong track record in assisting clients with disclosures of untaxed income. The services we offer can be valuable for individuals who are facing tax compliance issues and seeking guidance throughout the disclosure process.
Conducting a thorough review of the client’s tax affairs is an essential first step to identify any issues that require disclosure. This review helps ensure that all relevant information is considered and included in the disclosure.
Registering the client for the appropriate HMRC disclosure facility is crucial to ensure that the disclosure is made through the correct channels and in compliance with HMRC’s requirements. This step helps establish transparency and cooperation with HMRC during the disclosure process. We will advice on the best steps to take.
Preparing and submitting the disclosure is a critical task that requires attention to detail and accuracy. Our expertise in this area can help ensure that the disclosure is comprehensive, properly structured, and minimises the potential exposure to unnecessary tax, interest, and penalties.
In some cases, negotiating a time-to-pay arrangement with HMRC may be necessary if the tax liabilities are significant or if the individual requires a payment plan that is affordable based on their financial circumstances. Our team’s ability to assist in negotiating such arrangements can provide additional support to clients in managing their tax obligations effectively.
Overall, our services offer a comprehensive approach to guiding individuals through the disclosure process, helping them minimise their exposure to tax-related liabilities, and providing support in reaching a resolution with HMRC. Contact Lexicon Tax today on 01144 000192 for a free consultation.
