HMRC targets Etsy, eBay and Gumtree sellers – but when is your hobby taxable? (2024)

Thousands of online sellers who use websites such as eBay, Etsy, Amazon and Gumtree are the focus of fresh attempts by HM Revenue & Customs to crack down on tax evasion, Telegraph Money candisclose.

Such websites are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year.

This type of information gathering has enabled thetaxman to target 14,000individuals it suspects of failing to declare profits on their self-assessment tax returns, the Revenue confirmed.

Using extensive new powers introduced last year, HMRC can download people’s account information and even force sellers to pay tax that is disputed or subject to an inquiry.

The fresh crackdown follows a campaign that ended in 2012 to warn sellers that tax might be due on their hobby as long as their activity is classed as “trade”. We explain which types of sellers HMRC says must paytax below.

Since that campaign was wound down, the taxman is now on the lookout for a new evader to prosecute as a deterrent to others.

The Revenue said it was investigating suspected avoidance cases where “risks have been identified” or where traders need to be “educated” about their taxliability.

A spokesman said: “Where people choose not to set the record straight, we conduct follow-up work. This includes investigations andprosecutions.”

People who register their account as a “business seller” on websites such as eBay or Amazon are among the likelytargets.

•

Are you one of 14,000 suspected evaders?

The Revenue has sent 14,000letters to traders suspected of running a business and failing to declare this on their taxreturns.

Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.

Some of those targeted make as little as £100 profit online, Telegraph Money has learnt. However small, any earnings above an individual’s tax-free personal allowance – £10,600 for the 2015‑16 tax year – are taxable if the money made is considered a business profit.

In one letter seen by Telegraph Money, received in April, an eBay user is told: “HMRC receives information about fees paid by you from the e‑marketplaces you use and is aware you were registered as a businessseller.

“HMRC thinks you should have declared more on your tax returns than you did.”

One major accountancy firm, BDO, said it had noticed a “significant increase” in similar letters being sent to clients who sold items online.

Anyone who fails to reply will face an automatic tax charge, where HMRC makes its own calculations on tax due and demands that it is paid within three months.

So-called “accelerated payment notices” (APNs) will be issued to those who fail to comply. With these notices the taxman has a statutory power, among those afforded to HMRC in the 2014 Finance Act, to force people to pay tax upfront, even if the amount is subject to dispute or appeal.

And if you are deemed to be running a business, you could face a huge bill.

“Few people consider the tax implications of selling items through eBay and Amazon, Gumtree and Etsy, and may think it is just a hobby,” said Dawn Register, a tax specialist at BDO.

“Getting it wrong could involve paying back taxes, late payment interest and penalties to HMRC.”

Because HMRC can download information online, finding evaders should be “easy pickings” for the taxman, Ms Register said.

“Clearly the Revenue is using information about volumes of sales, looking at your transactions, and using this to estimate your tax bill. You’re then in the hands of HMRC’s debt collectors.”

When is a hobby actually a business?

You might think that selling second-hand items and crafts online is a hobby, but the taxman will class you as a business if it can prove you are doing “anything in the nature of trade”.

If you collect items and resell them in a short period of time, or sell home-made crafts online, you could be classed as a business.

There are several traits that mark you out as a business in the eyes of the taxman, known as the “badges of trade”, listed below. Just one of these could be enough to show that you are trading.

Profit is the trigger to get the taxman interested in you in the first place.

For Kirsty Hartley, making children’s party clothes began as a pastime after she gave up her lecturing job at the Manchester School of Art. The mother of three began selling her creations from her home in Lancashire on Etsy, an online marketplace where people can sell clothesand crafts from home, using the shop name Wild ThingsDresses.

But since she began selling her home-made items in 2011 – including baby rompers in animal designs and doll-making kits – the shop has rapidly grown.

^{Mrs Hartley, who designs and makes children's clothing, said her hobby quickly became a full-time job}

“I started small but making clothes quickly turned into a full-time job and in a few months I was shipping to America.” Now Mrs Hartley, 47, turns over £120,000 a year, before tax and other costs.

Mrs Hartley said she already submitted a self-assessment tax return due to her part-time job as a freelance textile maker.

“Because I already declared my freelance work, I was aware from day one that Iwould need to declare my profits from selling online.”

She said it was “simple and straightforward at first”, but now she hires an accountant to do her tax forher.

If your hobby is considered a business, you must declare any profits via your self-assessment tax return. The tax return deadline is on January 31 at midnight for the previous financial year, which ends on April 6.

There is now an automatic penalty of £100 for filing a late return – even if no tax is owed – and you could owe up to £1,600 in penalties after a one-year delay regardless of how much tax you owe.

You may also have to submit a VAT return if your taxable turnover exceeds £82,000 in any given 12‑month period. You have to register with HMRC within 30 days of reaching this limit – though the Revenue may allow you an exemption if your turnover only goes above this threshold temporarily.

The nine ‘badges oftrade’