In the context of the Digital Platform Reporting Rules, a digital platform includes any website, software, app, or online marketplace that connects businesses (vendors) to users (customers) in order to sell goods or services. Etsy, Uber, and Airbnb are popular examples you will almost certainly have heard of.
These digital platforms are now responsible for providing information to HMRC about what their sellers are earning annually – a measure taken to clamp down on tax avoidance amongst freelancers, digital sellers, and gig economy workers.
HMRC having access to this information isn’t a new thing – it has always been able to request data about users’ earnings from digital platforms. What’s changed is that as of 1st January 2024, digital platforms are now required to actively collect users’ earning information as official protocol.
From January 2025, digital platforms will also be required to report the information collected about users’ earnings to HMRC. They should no longer wait for this to be requested. So, what do these updated rules mean for freelancers? Let’s investigate.
Who do the Digital Platform Reporting Rules apply to?
Essentially, any seller who generates income via a digital platform – whether they sell goods or services – could have their financial information shared with HMRC. This includes (but is by no means exclusive to):
- Those selling goods via an online marketplace
- Those letting short-term accommodations such as holiday rentals
- Private hire services (including taxi drivers)
- Food delivery services (e.g. Deliveroo, UberEATS, etc.)
Keep in mind that the Digital Platform Reporting Rules might also apply if you’re a UK freelancer selling your services abroad.
Exceptions to the rules
If you are only an ‘occasional’ seller, digital platforms won’t need to report your earnings to HMRC. Those who fall under the category of an occasional seller are those who:
- Earn €2,000 or less
- Make fewer than 30 sales
However, if you’re a full-time freelancer, the exception of ‘occasional selling’ won’t apply to you – unless you have some sort of separate side hustle to support your freelance income.
How the Digital Platform Reporting Rules affect freelancers
Many freelancers use a digital platform to sell their goods or services, whether it’s a website, software, app, or online marketplace. As a result, the Digital Platform Reporting Rules apply.
The updated regulations also apply to freelance platforms such as Upwork and Fiverr. This means that any earnings you generate through these channels could be reported to HMRC by the platform.
If HMRC finds any discrepancies between your financial accounts and the information provided by the digital platform, this could be grounds for an investigation.
Is a tax return still required?
Yes, for those who the rules apply to, it is still necessary to submit tax returns as normal. Despite most digital platforms now being responsible for reporting to HMRC about what you earn from them, you (the taxpayer) don’t actually need to do anything different – as long as you were compliant!
So, if you’re registered as a sole trader, you’ll still need to go through the same Self Assessment tax return process in order to keep HMRC up to date and pay the required taxes and deductions. If you need to register, make sure you do it before the deadline!
Important dates to remember
Most freelancers submit their tax return using accounts on the basis of a tax year, which runs 6th April – 5th April. What could be confusing is that digital platforms will report user earnings to HMRC every calendar year 1st January – 31st December.
So, if you find yourself needing to compare figures, keep these different accounting periods in mind.
Do the rules affect tax allowances?
No, the Digital Platform Reporting Rules will not interfere with any tax allowances. This includes the Personal Allowance and the Trading Allowance.
The rules won’t affect your allowable expenses either. This means that if you make money through selling via a digital platform, you can still claim relief for all of your normal tax-deductible costs.
Digital Platform Reporting Rules FAQs
We’ve covered the fundamentals of the Digital Platform Reporting Rules but below are some further FAQs that you might find useful.
Will HMRC know about my online earnings?
If you meet the Digital Platform Reporting Rules criteria outlined above, HMRC will be informed of your earnings. That said, you should be reporting your earnings to HMRC yourself via tax return if your self-employment income is more than the Trading Allowance.
Do I have to pay tax if I sell secondhand clothes online?
If you earn more than £1,000 in a tax year through selling secondhand clothes through digital platforms like Vinted, Depop, and eBay, you will need to register for Self Assessment and pay tax – just like any other source of income.
What has been dubbed the ‘side hustle tax’ aims to help online sellers get their taxes right, as well as rooting out non-compliance more effectively. The Digital Platform Reporting Rules apply to resale sites like Vinted, Depop, eBay, etc., so it’s important to record your earnings accurately.
Can you find out what the platform told HMRC?
Yes, the digital platform is required to provide a copy of the data it reports to HMRC regarding your earnings from them.
Keeping accurate accounts
Although the Digital Platform Reporting Rules won’t affect allowances or tax-deductible expenses in any way, it is still essential to maintain accurate bookkeeping records..
Even though the rules also don’t impact the tax return process or liabilities, you still need to be meticulous in providing HMRC with the required information and meeting all of the necessary deadlines.
With digital platforms now responsible for reporting your earnings to HMRC, it’s vital that your own financial reporting tallies up.
Find even more advice and guidance for freelancers in our info hub!