You should be aware that starting in early 2023, tech companies like eBay, Amazon, and Airbnb will be required to share information about your earnings with HMRC if your business sells goods or services through these online marketplaces.
The Government is now holding consultations on proposals to require digital platforms to maintain revenue records of sellers, both inside and outside the UK, following the lead of the OECD.
Governments around the world are attempting to keep up with the rapid expansion of web-based businesses because they are understandably concerned that a sizeable portion of earnings may go unreported and untaxed, particularly when transactions occur in a different country than the one where a service is provided.
The consultation document states that the earliest the new reporting regulations would take effect is in January 2023.
Although “the impact for each seller is likely to be minor,” HMRC estimates that its new plans will have an impact on 2 to 5 million people in the UK.
Will your small business be affected by the new rules?
Only some of the services offered by sellers are covered by the model regulations, according to section 2.11 of the consultation document. If supplied for “consideration,” these “relevant services” include renting “immovable property,” “personal services,” and renting a vehicle.
In plain English, this means that any income received from the provision of personal services by an individual or entity on behalf of a user must be disclosed.
Examples include:
- Taxis firms
- Food delivery companies
- Labour such as cleaning or gardening services
- Freelance/gig economy services
- Property rentals
Therefore, well-known companies like Uber, Airbnb, Deliveroo, and Amazon, among many others, will fall inside the scope. The new regulations are expected to exclude startup platforms and sporadic sellers.
Why are the Rules Being Introduced?
Many platforms have their main offices abroad, especially in the US. Prior to the creation of the OECD standards, there was no requirement to share seller data. Since HMRC was unaware of the activities of UK merchants, it is assumed that sales were underreported and that some tax was unpaid.
This is especially true when the sale occurs in a nation other than the one in which the service is provided
How will the proposed reporting model work in practice?
The OECD model functions roughly 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.
Who will be Impacted by the New Rules?
Two to five million online service providers in the UK may be impacted by the measures, according to HMRC, however it noted that “the impact for individual seller is expected to be minor.”
Occasional vendors, or those who produce up to £2,000 in sales annually, are probably free from the regulations. Smaller start-up platforms are probably also left out.
Those who provide relevant services should be prompted to take a closer look at their earnings as the current personal allowance, which is tax-free, is £12,570 and earnings above this are taxable. HMRC will, from 2023, have access to significantly more data.
“In order to be clearly recognised, platforms will have to provide the name of the service provider and their location. The location of the rented home will also be provided to landlords. HMRC will be able to compare what is already being paid in tax to what may be new information provided by the platform to see if it adds up.
There shouldn’t be a problem if a complete self-evaluation has been made. However, the gap that has existed for individuals who have not paid enough will be quickly closed. If there is doubt, I advise seeking assistance right away and not waiting.
What should you do if you’re an online seller?
It goes without saying that you should already be reporting any revenues to HMRC through the self-assessment process if you get any income from digital platforms, which many start-up businesses do.
If not, after the OECD data sharing requirements go into effect in 2023, you can be subject to penalties for non-payment of tax.
If you only make a small portion of your income from online sales — the anticipated cutoff is around 2,000 euros annually — you can be exempt from the new reporting obligations. You must still report this income on your tax return, though.
Earnings up to your annual personal allowance are exempt from taxes. The cap is £12,570 for 2021/2.
The more technical facets of the suggested rules are covered in this helpful paper from the ICAEW.
On October 22, 2021, the consultation comes to an end.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.