Christmas is coming and plenty of us will be getting items of clothing we never asked for and have absolutely no plans to wear. One option is to return them to the shop, but only if you can get hold of the receipt somehow.
Another is to pass them on to some unsuspecting soul, through regifting. That isn’t easy, once Christmas is over. Few people want a festive reindeer jumper when it actually is Christmas, they certainly don’t want it afterwards.
Selling it online is the obvious solution, and it can bring in some much-needed cash. Many will take the opportunity to spring clean their wardrobes too.
Watch out if you do. Miruna Constantin, tax manager at accountancy group RSM, warns that HM Revenue & Customs is pioneering a new method of collecting information on people who sell second-hand clothes stuff online.
It could slap sellers with an unexpected tax bill if they don’t comply with all the necessary tax regulations, many of which they may not understand.
Constantin warned: “Selling that unwanted Christmas jumper? The taxman might be coming for you.”
She added: “Whether you’ve been caught by the Marie Kondo urge to declutter and detoxify your wardrobe, are trying to get rid of a few pairs of designer shoes to make room for some new ones, or have built up quite a side hustle, you need to know the rules.”
Many have turned to platforms such as Vinted, Vestiaire Collective, eBay or Etsy to sell their pre-loved item, but now these sites are under new tax obligations.
From January 1, 2024 platforms will be required to collect data on how much you make, which they must then report to HMRC.
The measures will also affect those renting out properties on Airbnb and other property rental platforms, or selling other services online.
“Platforms have been warned to brace themselves against landing in hot water with HMRC,” Constantin said.
The first reporting deadline for online platforms will be one year after the rules are introduced, on January 31, 2025.
To meet the stringent requirements platforms must implement new ways of collecting seller information to pass onto HMRC in the correct format.
The taxman will then verify it against its own records to make sure individuals are correctly reporting their income on their tax returns.
Constantin warned: “Platforms face hefty fines and penalties for failing to submit reports or submitting ‘inaccurate, incomplete, unverified sellers’ records. This gives them a huge incentive to make sure they meet their reporting obligations.”
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If you earn less than €2,000 (£1,733) for fewer than 30 sales in the annual reporting period, then platforms are not required to pass your information HMRC.
However, that doesn’t mean you do not have any tax reporting obligations, Constantin warned.
“If you have a profit-seeking motive, for example, buying premium items from outlets to sell at a profit online, your little side hustle might be seen as trading.”
The number of transactions you make, or the nature of the assets you sell, will also determine your tax position.
“You may need still to file a self-assessment tax return with HMRC and pay income tax and National Insurance contributions paid accordingly,” she warned.
The position is obviously complex, making life harder for those who only trade occasionally.
As a general rule, you make sales of £1,000 or more in a year, you will need to consider whether a tax return is required.
Constantin said the changes “could bring a whole new raft of unaware individuals within HMRC’s reach and could make some taxpayers think twice about their wardrobe spring clean”.
