The so-called ‘side-hustle’ tax crackdown launched by HMRC on people selling and trading through online platforms has garnered widespread media attention. Much of the reporting – and uproar – so far has focused on those on the more ‘everyday’ end of the spectrum; those selling second hand clothes on Vinted, or running Etsy shops in their spare time.
[See also: Why New York’s private members’ clubs have everyone talking]
However high-net-worth individuals selling or trading luxury goods such as watches, classic cars and fashion items, or operating holiday rental portfolios, could find themselves under the spotlight too, owing to the far-reaching nature of the rules.
HMRC and the push for more information
This is a new mechanism by which HMRC can obtain information from online platforms about the activities of its sellers. Rather than specifically being a targeted crackdown on ‘side hustles’, they form part of a worldwide move to introduce better information sharing between online platforms and regional tax authorities. In general, this is where the world is going: it’s a disclosure exercise aimed at stopping people from hiding income.
[See also: Expert classic car advisers]
The platforms, which include Etsy, Vinted, eBay, Airbnb and others, must automatically report to HMRC when a seller exceeds 30 transactions per annum, and generates a gross income of over around £1,700.
This reporting aspect is entirely separate from the question of whether the seller has to pay tax. An individual making £5,000 from 50 sales may be reported upon to HMRC but still be exempt from tax if this is their only income and they can allocate their £12,570 personal allowance against the income. Anyone receiving less than £1,000 during the tax year from online sales will generally be exempt from having to pay tax. This is because of the £1,000 ‘trading allowance’.
Content from our partners
[See also: ‘One of the masters of our times’: Nick Foulkes remembers his friend Thierry Despont]
This means low-level online sellers will be exempt from any additional tax burden, but issues might arise at the other end of the spectrum. Rare second-hand designer handbags can sell for £10,00-plus and watches for upwards of £100,000.
Many ‘professional’ sellers will have already accounted for this and established themselves as a limited company, or other appropriate business structure, and sought the best tax advice. For those who haven’t yet, or who’ve chosen to fly under the radar, now is the time to act. Scrutiny is only going to intensify as time goes on.
So, what should HNWs do? The first piece of advice is to get your tax affairs in order. This could be considering whether you should be operating as a limited company, which could mean income is subject to a lower tax rate.
When CGT and VAT come into play
Those buying and selling high value goods as investment pieces, such as antique furniture or fine art, must also consider capital gains tax. For example, a painting bought for £50,000 and sold for £250,000 through an online platform is more likely to be classed as a capital gain, rather than a trade, making it subject to CGT (the annual exemption of £6,000 may cover smaller gains).
[See also: Harrods’ first private members’ club opens its doors in Shanghai]
VAT is another consideration and anyone selling over £85,000 worth of goods or services per annum must consider whether they need to register for VAT, charge it on the sales they make and then pay it back to HMRC. Failure to deal with VAT appropriately could not only mean HMRC issue penalties but could also mean you end up paying over some of the receipts you thought were yours to HMRC to account for the VAT.
The global perspective on the side-hustle tax
The changes in the headlines this week aren’t limited to the UK, either. The move towards information sharing is in place across large parts of the world and is ultimately happening on these shores because the country has signed up to new rules from the OECD, an intergovernmental economy and trade organisation. This means foreign rental property portfolios are also included. An individual who may own and rent out a number of high value chalets in the French Alps, for example, shouldn’t think themselves immune.
In this scenario a French online platform used to handle bookings may also be subject to similar reporting requirements as UK counterparts and will inform the French tax authorities, who will in turn flag any applicable income to HMRC. In short, the days of flying under the radar are nearly behind us.
[See also: UHNWs brace for tax reform in election year]
Is the ‘side hustle’ crackdown worth all of the media headlines it’s generated? Perhaps not, but it’s still something high net worth individuals should certainly be aware of.
Information sharing and the availability of data from online platforms means it’s easier than ever for HMRC to scrutinise tax affairs. Nobody wants that and anyone selling high value goods online should make sure that their affairs are in order. However one spends their sale proceeds, an HMRC enquiry is the perfect way to take the shine off anything, irrespective of how rare or expensive it may be.
Julia Rosenbloom is a partner in Shakespeare Martineau‘s private client tax department
