If your business sells products or services via online platforms like eBay, Amazon and Airbnb, you should be aware that these tech companies will be obliged to share details of your earnings with HMRC from early 2023.
Governments worldwide are trying to catch up with the exponential growth of web-based businesses – understandably concerned that a substantial amount of earnings may go untaxed, and unreported – especially where transactions take place in a different country to the one where a service is carried out.
According to the consultation document, the new reporting rules will come into play in January 2023 at the earliest.
HMRC expects its new plans to affect 2m-5m people in the UK, although “the impact for each seller is expected to be small.”
Will your small business be affected by the new rules?
According to 2.11 of the consultation document:
Only certain services provided by sellers come within the scope of the model rules. These ‘relevant services’ are rental of ‘immovable property’, ‘personal services’ and transport rental if they are provided for a ‘consideration’.
In plain English, this means that if personal services are carried out by an individual or business, on behalf of a user, then any income derived from this transaction needs to be reported.
Some examples include:
- Food delivery
- Freelance work
- Providing labour (such as cleaning, gardening).
So, big names such as Uber, Airbnb, Deliveroo and Amazon – and many others – will be included within the scope.
Occasional sellers and start-up platforms are likely to be excluded from the new rules.
How will the proposed reporting model work in practice?
Broadly speaking, the OECD model works as follows:
- The digital platforms must retain data about their sellers – identifying who the individuals are, where they are located, and how much income they have made each year.
- The platforms must report the verified data to the relevant tax authority (e.g. HMRC) by 31st January each year.
- The platforms must provide this data to the sellers.
- The tax authorities will share this information with other international tax authorities.
- Each tax authority will be responsible for ensuring sellers pay any tax due, and platforms comply with the new reporting requirements.
What should you do if you’re an online seller?
Clearly, if you make any income via digital platforms – and many start-ups businesses do – you should already be including any earnings to HMRC via the self-assessment process.
If not, you may face penalties for non-payment of tax once the OECD data sharing rules come into force from 2023 onwards.
If you derive a small part of your income from online selling – under 2,000 Euros per year is the expected threshold – you may be excluded from the new reporting requirements. However, you should still include this income on your tax return.
You can earn up to the limit of your personal allowance tax-free each year. The limit for 2021/2 is £12,570.
Here is a useful article from the ICAEW which covers the more technical aspects of the proposed rules.
The consultation closes on October 22nd 2021.