Tax preparation expert and founder of DSR Tax Claims, David Redfern, has issued a warning to online sellers to ensure that their income is correctly declared to HMRC or face penalties for undeclared income.
Redfern issued his warning ahead of last Saturday's Royal Wedding, as budding entrepreneurs seized on opportunities to make extra cash with goods and services related to the big day. Redfern warned potential sellers to ensure that they were aware of HMRC Income Tax rules surrounding income from online sources to ensure that they do not face a nasty shock in the form of penalties and tax demands for the extra income they might make.
Redfern aimed his warning at people who might have viewed the big day as an opportunity to increase their finances by selling Royal Wedding themed goods online through sites such as Etsy or eBay, as well as those hoping to make a few extra pounds by renting out spare rooms or parking spaces in the capital via online services such as Airbnb.
He stated that "people often make the mistake of viewing any extra cash they make on sites such as eBay or Airbnb as pocket money, believing that they don't need to pay tax on it but unfortunately for them, HMRC doesn't see it the same way – all extra income needs to be declared to HMRC and if it takes the online seller above their personal tax-free allowance then Income Tax would be payable". The current personal allowance is set at £11,850 for tax year 2018/19.
Redfern also cautioned those who believe that their online activities are likely to go unnoticed by HMRC, stating that "Her Majesty's Revenue and Customs have put a number of procedures in place to target online sellers, including being able to collect the details of users of these websites, including any sales they make – whilst they're unlikely to target someone listing a very occasional item on eBay, if they deem you to be trading as a business via these websites, they will be expecting to see you declare this income and will investigate your finances if you don't".
He noted that there was some margin for online income, such as the Rent a Room scheme, which allows a homeowner to earn rental income from a furnished room in their house tax-free as well as the £1,000 allowance for self-employed income and rental income not under the Rent a Room scheme. He concluded by stating that honesty is always the best policy when dealing with HMRC, adding that they treat honest mistakes more leniently than those deliberately attempting to mislead.