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HMRC issues tax warnings for online sellers and content creators

Following the dramatic increase in the number of people earning a living online since the lockdown days of the COVID-19 pandemic, HMRC
is now sending ‘nudge letters’ to those who may have failed to declare taxable income from online activities in the last few years.

These letters are currently targeting over 2,000 people who earn money or accept gifts in exchange for content creation on social media platforms such as TikTok, Instagram, and YouTube. HMRC also plans to send another wave of letters to 2,000 sellers regarding their income from online marketplaces such as eBay, Etsy, and Facebook.

This ‘nudge letter’ exercise is part of the tax agency’s attempts to keep up with the digital economy, using data analytics from a range of online platforms to identify people whose online activities may have resulted in undeclared taxable income.

If you participate in online trading, content creation, or sponsored influencing, you may have already received one of these letters – or can expect to receive one soon. This blog explains what these HMRC notifications could mean for you, and the next steps you should take.

Why is HMRC contacting content creators and online sellers?

Online trading and content creation have experienced a boom in activity in recent years. A global study by the software company Adobe revealed that ‘content creators’ in the UK doubled from 8 million in 2020 to 16 million in 2022, with 76% using this as a ‘side hustle’.

Despite the majority of these content creators being millennials or Gen X, there are many young people in their teens and twenties who don’t know much about tax, meaning they may not even realise that they should be paying income tax on the money they earn online.

The same goes for online sellers and influencers, who may not realise that there is an annual tax-free allowance of £1,000
for trading and miscellaneous income, and that turning a regular profit or accepting gifts for promotional purposes is likely to exceed it.

With content creators and influencers in the UK earning an average of £94–122 an hour according to Adobe’s study, it’s not surprising that HMRC is chasing down high online earners to recoup missing tax revenue.

However, the letters they’re sending out aren’t accusing individuals of tax evasion, so you shouldn’t panic if you get one. The agency is simply informing people that they might owe unpaid tax, and giving them the opportunity to declare their income.

What counts as online trading or online income?

Some people believe that they only need to worry about the Personal Allowance, which currently allows people to earn £12,570 income tax-free, but this isn’t the case. Many aren’t aware that all profits made from online activity are taxable, or that there is a yearly allowance of £1,000
earnings from such activities before income tax is chargeable.

There are no special rules for different types of online income – individuals need to register with HMRC and submit an annual self-assessment tax return if their online income exceeds the allowance. Alternatively, if you decide to set up a company for your online activities, you have to register for corporate tax instead.

Essentially, if you earned more than £1,000 from online activity within a tax year, you need to declare this to HMRC. It doesn’t matter whether you consider yourself self-employed, full-time or part-time, or not – any online activity you participate in with the aim of making a financial profit can be considered trading activity, with income that must be declared via self-assessment.

This applies even if you’re a content creator or influencer exchanging promotional activity for gifts rather than actual money. The cash value of the goods at the time you received them counts towards your earnings, so you must calculate what they’re worth and report this to HMRC if their value exceeds the allowance.

There are many ways to earn additional income from one-off activities, so if you aren’t sure whether your ‘side’ earnings are taxable, the government website has an online tool that can help you to figure out whether you need to submit a self-assessment tax return or not.

What should you do if you receive a tax letter from HMRC?

If you get one of these letters from the tax agency, it will ask you to submit a ‘certificate of tax position’ within 30 days
of receiving it. They recommend using the government’s secure online disclosure service to voluntarily disclose your additional income, after which you’ll have 90 days from receipt of the letter to pay any outstanding tax calculated.

You’re not legally obligated to complete the certificate of tax position and return it to HMRC, but not responding to their ‘nudge’ will only draw more attention. The agency may open an investigation into your tax affairs, and deliberate avoidance could result in financial penalties and even court action on top of having to pay the outstanding tax and interest you’re liable for.

Under no circumstances should you ignore the letter. It’s much better to respond before the deadline by making a voluntary disclosure, or explaining a valid reason why your online income didn’t need to be declared. Compliance will make the process faster and easier for you, potentially reducing late tax penalties and allowing you to arrange a tax repayment plan.

To work out the total amount you should declare, you’ll need to keep track of all the money and cash equivalents you’ve earned, as well as any tax-deductible expenses you may be able to claim.

Tax advice for online sellers and influencers

HMRC is making its message clear – anyone with undisclosed income from online or digital activities urgently needs to take action to bring their tax accounts up to date. If they don’t, they risk becoming the subject of a tax investigation and having to pay additional fines and penalties.

The ongoing process of keeping financial records and filing tax returns can seem stressful and complicated to online traders and content creators who are new to tax matters, but the government has published a step-by-step guide
on setting yourself up as a self-employed sole trader.

If you’d rather have an expert handle your tax affairs on your behalf than wrangle accounting software on your own, GBAC can help with a range of accounting services, including:

  • Creating a tax planning strategy to maximise your deductions and schedule payments
  • Preparing and submitting your self-assessment tax returns accurately and efficiently
  • Providing cloud accounting services for ongoing ‘bookkeeping’ of your financial records

Contact us, accountants in Barnsley on 01226 298 298 or email info@gbac.co.uk to find out how we can help you, so you can spend more time concentrating on growing your online business or following.