Will HMRC really come after me for selling old clothes? Why you're unlikely to have to pay taxes

The tax authorities are taking tough action against online resellers who use digital platforms to earn extra money and do not declare this as income.

New rules that came into effect on January 1 require platforms to collect information about users, which they must report directly to HMRC from January 2025.

HMRC already had the power to request this information, but new rules mean this will happen automatically – making it easier for the tax authorities to go after resellers who don't pay tax.

However, the new rules have caused some confusion over whether this means people doing clearance sales or selling unwanted gifts will be hit with additional taxes.

We explain why the new rules will have little to no effect on the average online seller, and what it really means to be an online trader.

What are the new rules and why have they changed?

From January 1, digital platforms that allow people to sell goods or services will have to collect information about the income their users earn.

From next January, platforms must provide this data directly to the Tax Authorities for the 2024 calendar year.

Once HMRC has this information, it can share it with other tax authorities abroad who have also complied with the rules.

It would mean that people who rent out a house abroad through a platform such as Airbnb or resell items on eBay would be forced to comply.

But as is already the case, they only have to pay tax if their income exceeds a certain threshold.

HMRC can already ask platforms for this information, but the new rules are designed to make the process faster and more efficient.

Most importantly, no new tax obligations arise for individuals selling online.

The rules on who must declare income, who registers for self-assessment and how many people pay tax remain unchanged.

If you have already declared your income to HMRC because it exceeds the current trading allowance or capital gains tax (CGT), you do not need to do anything else.

Instead, the rules will make it easier to target people who have slipped under the radar and have not declared income earned through these platforms.

> What is capital gains tax and how much do I have to pay?

Do I have to pay taxes if I sell clothes on eBay or Vinted?

Tax bill: No changes have been made to the tax paid by people selling online on sites like eBay or Vinted

The introduction of these new rules has led many to believe that they will have to pay tax on selling unwanted items or gifts online.

HMRC itself says you can be classified as a 'trader' if you regularly sell goods or services through an online marketplace, meaning you'll have to pay tax on anything you earn over £1,000.

However, it is a little more complicated than this. If you sell old clothes a few times, there is little chance that you will be stung.

It all depends on what you sell, why you sell and whether you make a profit.

If you clear away old clothes that you no longer need, and for less than what they cost, you will not be classified as a 'trader'.

Who is classified as an online trader?

Unfortunately, there is no single definition of what constitutes a transaction, which is why the new rules have caused some panic.

Toby Tallon, tax partner at wealth and accounting firm Evelyn Partners, says: 'These rules have been around for years. There are no hard rules and no legal definition of a profession.'

However, you can use the 'badges of trade' tests, which are used by HMRC to help determine whether an activity is a trading activity.

These include whether a seller wants to make a profit and the number of transactions. If it is a one-off sale, you are unlikely to be classified as a trader.

However, it's not as simple as ticking a few badges and hoping HMRC will accept that it's not an exchange.

In one case, a film director doing business abroad bought 1 million rolls of toilet paper and sold them on his return to Britain, making a profit of £11,000. In this case it was clear that the sole purpose of resale was to make a profit.

Tallon says all nine tests must be taken into consideration, with each test assigned a weight, and in the round, depending on the conditions.

HMRC provides other examples of where, as a trader, you may need to register for self-assessment and pay income tax.

A person who makes greeting cards in his spare time, first at cost and then for profit, trades as he sells with the intention of making a profit.

It also refers to someone who collects model cars and sometimes buys and sells them, but also looks for trade items. The swaps are intended to complete a set, which are more valuable than individual models.

If they have a complete set, they offer it for sale or trade to make a profit. HMRC say this is likely to be classified as trading.

Tallon says that if you treat something as an afterthought, it's generally considered a transaction.

Resale: If you buy and sell to make a profit, you are considered a trader

What tax do you have to pay if you are a trader?

If you're a trader, you get a trading allowance that allows you to convert £1,000 before paying tax.

Tallon says: 'To keep it simple, you can get a £1,000 deduction, but that means you can't claim any other expenses. It's a substitute, so it's about turnover and profit.'

This means that everything you charge is included in this €1,000, including any postage and packaging costs.

'If you thought it was a real extra income, then you had turnover, but there were also costs: the costs of buying, improving, repairing, storing.

'If you charge an extra £5 to send by post, you'll be selling for £100 plus that £5 for expenses. That trading fee means you can't claim expenses.'

If you earn more than €1,000 in a year, you must register for a self-assessment.

Do you have to pay taxes if you are not a trader?

If you are sure that you will not meet the trading threshold, you will not pay income tax.

If you sell unwanted clothes, you don't have to pay taxes if you don't make a profit.

However, if you sell unwanted items that could be sold at a profit (paintings, antiques, jewellery) you may be liable to pay capital gains tax (CGT).

Tallon: 'If you inherited an antique table and chairs from your grandmother and they were very beautiful, but you didn't want them anymore, you might be able to sell them.

'If that was all you did, the badges of trade test would probably mean it wouldn't be a trade because there was no intention to make a profit, it was a one-off and you didn't buy them.

'This would not be subject to income tax, but to the CGT rules.'

Under the CGT rules, individual items worth less than £6,000 are excluded, so if they are sold they will not be liable to tax.

More often than not, if you sell something second hand, it will go for less than what you bought it for.

Tallon says HMRC tends to ignore 'hobby' activities that lead to such a loss because it could then be claimed as an expense.

Likewise, the sale of unwanted personal property does not count as taxable income.

Are you making a profit? More often than not, if you sell something second hand, it will go for less than you bought it for – and this means you're unlikely to be liable for tax

When will HMRC be notified?

The new rules mean that anyone who makes 30 trades in one calendar year will likely be flagged as a potential trader.

It is unclear whether this concerns 30 transactions per platform or across all online platforms.

It is important to remember that the platforms themselves do not determine whether someone uses it as a side hustle, but only report on the number of transactions.

Tallon says: 'Platforms' reporting requirements are about the number of sales. It is not about a judgment as to whether it is a trade or not a trade, and that is within the CGT regime. They are not asked to do that.

'That reporting doesn't mean they're saying you've got a transaction, and HMRC will necessarily take that over. HMRC expects you to come forward.'

Instead, it is more likely that platforms will notify HMRC of users who make more than 30 transactions a year, and send 'nudge' letters to remind traders to declare income.

Tallon says: 'If you make 30 transactions on a particular platform, you can expect to receive a letter from HMRC asking for clarification.'

The tax obligations for sellers have not changed, but HMRC will now have a better idea of ​​who is making some extra money online through these new rules.