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From 1 January 2024, new data-sharing rules are set to come in that will force popular digital platforms to share their users’ information, including their income, with HMRC. The new rules will apply to well-known ‘side hustle’ platforms, such as Etsy, Airbnb, Deliveroo, Uber, Upwork and Fiverr & eBay.
From 31 January 2025 (for the preceding calendar year i.e. the period 1 January 2024 to 31 December 2024) – send this information to both HMRC and to the individual themselves.
HMRC is investing £39.9 million [not £40 million?] to crackdown on people not properly reporting side hustle tax obligations. There will be a specialist team of (just)? 24 who will work to spot discrepancies between income from digital platforms and tax returns. Where there are grounds for doing so, HMRC will launch tax investigations.
HMRC will know about anyone selling used clothes on Vinted, renting out their home on Airbnb, or getting rid of old camera equipment on eBay is going to come under fresh scrutiny from the taxman, following a crackdown on income earned from online trading. Websites will have to collect data about sellers.
For individuals, this will be their name, address, date of birth and national insurance number, plus what they have earned and paid in fees on the platform. If a property is being let, they will need its address. This information will not have to be shared with HMRC until the end of January 2025. Register says other data, such as bank account details, may also be collected and ultimately be shared with tax authorities.
Smaller sites will also be affected. “This will include those that allow you to sell goods and services, including those that arrange taxi, private hire or food delivery,” says Register. “It will also include those that facilitate short-term property rentals, as well as contract-work sites that help freelancers find one-off work assignments.”
“The information provided to HMRC should make it easier to detect those who are either mistakenly not declaring what they should, or those seeking to evade tax,” says Register. “It will therefore be even more important for taxpayers to ensure they are accurately reporting their income from all sources.”
Everyone has a trading allowance each tax year, which means they can earn up to £1,000 without paying tax. “Those involved in ‘hobby selling’ – for example, they may make a few sales and genuinely be hoping to make a profit, but on a small scale, may have no real issues”. “This is on the basis that those involved … would be eligible for the trading allowance,” says Salter. “HMRC would not typically expect people in that situation to even complete an annual tax return, though if a tax return is issued to them, taxpayers should always complete and submit it, as automatic penalties can arise if the filing obligation is not met.”
The £1,000 threshold – about £83 a month – is intentionally set low to include just the most occasional sellers, says Cairns. If you earn more than that, you will be expected to fill out a tax return, even if there is no tax due. On top of the trading allowance you can also use the rent-a-room scheme if you are using Airbnb to offer accommodation in a room within your own house. This lets you earn up to £7,500 a year tax-free.
If people have been trading at above £1,000, but not made a tax return, they may find themselves getting ‘nudge’ letters from HMRC to sort their affairs, or asked to make a voluntary disclosure about undeclared income, says Salter. “It is quite possible that some of the more egregious cases could result in HMRC audits and even criminal prosecutions.”
HMRC says people selling off clothes or items that they originally bought at a higher price will not be liable for tax on that income. Vinted, the resale site which has boomed in recent years, says it is working to make the new rules easy and convenient for sellers.
“We are currently finalising some tools, and we’ll be contacting eligible sellers through next year with information on the steps they need to take, and why,” it says.
Sellers on eBay will need to supply their national insurance number, and the site says it will launch information pages with the details it will be collecting. Airbnb says it has been sharing earnings information from hosts with HMRC for a number of years and it has tax information on its site. Gumtree, the small ads site, says it does not fall under the scope of the new rules as it does not facilitate payments.
Why is this happening?
Register says the “gig economy” has changed much faster than tax authorities expected, but “they are now catching up fast and making life much harder for those seeking to hide income and gains”. Three years ago, the OECD published rules on how digital platforms should report people selling goods and services.
This followed changes in the world’s economy, with more people working from home through freelancing websites, and also selling secondhand goods, such as clothes, says Miruna Constantin, tax manager at accountants RSM UK.
“These websites connect skilled freelancers from around the world with clients, and it would be safe to assume that, without any failsafe measures in place, it is fairly easy for governments to miss out on the tax due on the income received,” she says. “Besides freelancers, there has also been a surge in sales of second hand clothes and other goods, maybe because people are struggling to make ends meet, or perhaps because they decide to shop more sustainably.”
Salter says the UK government believes many people and businesses are trading through these sites and not reporting profits. “Without the new regulations, HMRC didn’t really have the power – especially with digital platforms based overseas – to demand details of those individuals who were trading through the relevant platforms,” he says. “One could argue that it was a recipe for the black economy and tax evasion.”
“The latest figures suggest there are 7.25 million gig workers in the UK, with one in six adults working a gig job once a week – with this in mind, the incoming measures are set to impact millions.”
Lets assume that there are more ‘Side Hustles’, 8 million, multiplied by a nominal sum of £4,000 extra earned by 50% of those 8 million [with the other 50% not exceeding the HMRC £1000 trading allowance], 4 million individuals multiplied by £3000 (£4K minus the £1000 trading allowance), @ a basic rate of 20% tax? This is no chicken feed?
However, such ‘top-line’ figures would not include any self employed status, tax exemptions, expenses claims? For illustrative purposes lets assume a further 50% deduction. We are still looking at a potential additional revenue to HMRC of £400 million per annum. However, that does not consider the additional cost of assessing, contesting and collection of such, from 8 million individuals, {with currently a team of just 24 dedicated Tax officials)?
Tax Evasion
The UK tax authority has prosecuted only eight cases in the past two years for the enabling of tax evasion, despite pledging to pursue the lawyers, accountants and financial institutions that help clients carry out tax fraud.
Instead, there has been a steep drop from the 43 prosecutions brought by HM Revenue & Customs in the two years before the Covid-19 pandemic, according to a response to a Freedom of Information request submitted by the Financial Times. “The government’s rhetoric on cracking down on tax evasion, aggressive avoidance schemes and those who promote them is essentially not being followed through by HMRC,” said Nimesh Shah, chief executive at the accounting firm Blick Rothenberg. John Hood, tax partner at accounting firm Moore Kingston Smith, who used to work at HMRC, said its limited resources meant “there are very few barriers for individuals to set up businesses that promote aggressive structures”.
The collapse in prosecutions of tax evasion enablers comes as HMRC is under intense pressure to recoup lost tax revenue. A report by the National Audit Office, parliament’s spending watchdog, in December revealed that a sharp fall in investigations over the pandemic had cost the government as much as £9bn.
The overall tax gap in the UK — the estimated difference between tax owed and tax paid — was around £32bn in 2020-21, the latest year for which data is available. In an interview with the Financial Times in January, Simon York, HMRC’s head of serious fraud, said the agency was intent on pursuing the financial and professional services firms that facilitate tax evasion as well as evaders themselves, noting that this required more collaboration with international counterparts.
The number of prosecutions fell over the pandemic, partly owing to court closures, while lockdown restrictions affected the agency’s ability to develop cases.
But tax professionals are concerned that a lack of enforcement by HMRC, which employs 5,000 (+24)! people in its fraud investigation service, weakens the deterrent effect of the legislation designed to prevent the facilitation of tax fraud. “The current low number of prosecutions naturally means that these matters are afforded less attention than other matters which are perceived to be greater risk,” said Nicholas Gardner, a partner at law firm Ashurst. The FOI request also revealed that HMRC has 102 live investigations into professional enablers of fraud, down from 153 in May 2021.
In 2017, the government brought in legislation, known as corporate criminal offences, which made it a crime for corporations to fail to put in place “reasonable procedures” to prevent facilitation of tax evasion. But it has yet to make any corporate criminal offence charges and the latest figures showed just nine live investigations.
John Cullinane, director of public policy at the Chartered Institute of Taxation, said there was a “strong case” for wider use of prosecutions by HMRC. But he cautioned that there was a risk of failed prosecutions taking up time and resources, resulting ultimately in a lower tax take for the Revenue, at least in the short term. “Our preferred approach would be a public consultation on prosecution policy, to discuss the overall approach and the trade-offs needed to achieve that,” he said. HMRC said tackling enablers of tax fraud “remains a top priority for us”. “We’ve always been clear that we focus criminal investigations on cases where the behaviour is particularly severe, where civil sanctions alone won’t work, and where criminal prosecution will be a strong deterrent to others.”
£45.4bn in revenues
- £9.6bn in profits
- £296m in tax paid
- £1.5bn in tax avoided
Eight large tech companies in the UK made an estimated £9.6bn in profit from sales to UK customers in 2019, an analysis by TaxWatch shows. But by moving money out of the UK, these companies ended up declaring a fraction of these profits in the accounts of their UK subsidiaries, radically reducing their tax liabilities.
Amazon, eBay, Adobe, Google, Cisco, Facebook, Microsoft, and Apple faced UK corporation tax liabilities of £297 million in 2019. That puts the total amount of tax avoided by the companies in the UK at an estimated £1.5bn in 2019, the latest year where figures exist.
Large US-based technology companies have tens of millions of UK users and make billions in sales to UK customers. The UK is unarguably a significant source of corporate profits for these companies. But a glance at the accounts of their UK-based subsidiaries shows that little of this profit ends up in the UK.
As Finance Ministers seek to negotiate a new international settlement on how large multinational companies should be taxed, understanding the scale of tax avoidance by global digital giants is key to evaluating the outcomes of any deal.
This latest HMRC tactic of targeting the ‘Gig Economy’ those who are struggling to make ends meet, often, working individuals, families, is yet another disproportionate example of victimisation of those at the very bottom of the food chain whilst seemingly ignoring those at the very top, billionaires, corporations, who pay little or no, (appropriate) tax.
Remember this when you next vote people?
Thanks for Reading
#Peace
Current list of deliberate tax defaulters – GOV.UK (www.gov.uk)
Dying to Live 