Online sellers face potential tax crackdown as government seeks to fund business rates cut
Online marketplace sellers could face intensified tax scrutiny as the government searches for ways to fund Prime Minister Burnham's business rates cut for hospitality venues, leading accountants have warned.
The business rates reduction announced in July will cost the Treasury approximately £100 million annually when it takes effect in April 2027. The policy will provide a 20% reduction to nearly 32,000 pubs, clubs and live music venues across England, saving the typical pub around £1,100.
Tax professionals have cautioned that HMRC may tighten existing rules governing online sellers on platforms including eBay, Vinted, Etsy and Depop to help offset this fiscal impact. Business rates currently generate around £28.8 billion in government revenue, making the UK's share of total government revenue from business rates the third highest among 18 OECD countries.
Current reporting framework
Digital platform reporting rules introduced in January 2024 already require UK-based online platforms to report seller information to HMRC when sellers exceed 30 transactions or earn more than £1,700 in a calendar year. These regulations implement the OECD Model Reporting Rules for Digital Platforms, part of a coordinated international effort to combat tax evasion that the EU adopted from the beginning of 2023.
Platforms submitted their first annual reports to HMRC by 31 January 2025, covering the period from January to December 2024. The same reporting cycle applies for subsequent years.
HMRC has clarified that these rules do not create new tax obligations for individuals. Selling personal possessions at a loss remains non-taxable, with the reporting requirements designed to help the tax authority identify those who may have earned undeclared trading income.
Existing tax thresholds
Under current rules, the UK maintains a £1,000 tax-free trading allowance for online sellers. Those earning below this threshold from casual trading may not need to declare their income, though they should keep records in case HMRC requests them. Sellers exceeding this threshold must register as self-employed.
The warning from accountants comes as HMRC pursues broader digitalization of tax compliance. Making Tax Digital requirements mean self-employed individuals with qualifying income over £50,000 for the 2024 to 2025 tax year will need to use digital record-keeping from 6 April 2026, with the threshold lowering to £30,000 from April 2027.
The hospitality sector business rates cut represents a significant fiscal commitment from the Burnham government, creating pressure to identify alternative revenue sources. Tax professionals suggest online marketplace enforcement could provide one avenue for recovering the lost revenue, particularly as digital platform reporting systems are now in place to facilitate enhanced compliance monitoring.
