HMRC’s New Policy on Reselling Clothes Is Here: Are You Affected?

This January, HMRC got alarm bells ringing for side hustlers everywhere when it introduced a new clampdown on reselling clothes and renting out spare rooms. The new rules mean these companies will report to HMRC on users’ transactions.

For the first time, many with side hustles on popular reselling apps like Depop and Vinted will need to pay income tax - which has left a sour taste in the mouth for many on social media.

But what exactly has happened, and what is HMRC asking for? Should side hustlers everywhere be worried? Let’s dive into the details.

What exactly is HMRC doing here?

Good question. HMRC has implemented new rules to better track any side hustle income people are trying to hide, including renting out spare rooms and reselling clothes. As a result, companies like Vinted, Airbnb, Depop and eBay are now required to share transactional data with HMRC.

The move comes after the UK signed up for the Organisation for Economic Cooperation and Development (OECD), designed to help eliminate tax dodgers and encourage transparency.

It’s going to get more intense for side hustlers: from January 2025, these apps will have to report the financial details of any sellers who have made at least 30 transactions in the calendar year valued at £1735 or more to HMRC. What does that involve? Your bank details and transaction history will be sent over to the tax man.

So what exactly are the tax implications?

There’s an important caveat here: HMRC is interested in people profiting from reselling items, not anyone selling personal things. That £100 evening dress you wore once, and now you’re selling for a tenner? You’re probably not going to fall into the net. In fact, HMRC already has some wording on its website to cover this: “You do not need to pay tax on a personal possession you sold for £6,000 or more if you did not make a profit."

If you’re reselling items with the intention of making a profit, that’s where things now get trickier as HMRC doesn’t consider these to be personal items. Everyone gets a £1,000 threshold where they don’t need to send off tax returns. You must register as self-employed with HMRC and report your reselling earnings as soon as you exceed that.

This isn’t specific to anyone reselling clothes for profit - anyone with a side hustle earning over £1,000 has to do it.

What’s been the reaction?

Naturally, HMRC getting involved in new areas tends to draw a negative reaction - and this is no exception. Criticism on social media has ranged from disappointment to outrage, with many wondering why the government isn’t focusing on wealthy tax dodgers instead.

There’s also a valid point that the new rules could discourage would-be sellers from listing their items for sale. Given we’re in the middle of an environmental crisis and fast fashion is a leading cause of environmental waste, any slowdown in reselling clothes second-hand isn’t great.

What should you do?

If you think the new rules might impact you, the best advice is to keep track of your receipts so you have proof of your transactions. There’s no idea yet how tough the crackdown will be, so if you want to be extra prepared, you can start putting away a proportion of your reselling earnings away for tax.

Everyone starts off with a tax-free personal allowance of £12,570 for the tax year 2023/24. After that, you become a basic rate taxpayer, set at 20% between £12,571 and £50,270.

If you’re earning more than £50,270 already, whether through a full-time job or side hustle, you’ll need to pay the extra 40% tax rate on anything above that figure.

Should I get an accountant to help?

Being unexpectedly caught up in new HMRC rules can catch people out - but the good news is you have plenty of time to get your financials sorted and file a tax return. If you’ve earned over £1,000 in the 23/24 tax year, which ends April 5th, you don’t need to file your tax return until January 31st, 2025.

If you’re going through the Self Assessment process for the first time, it can be daunting to face alone. You can hire an accountant on a one-off basis to help sort out your tax return. Taking professional advice has the two-fold benefit of ensuring you’re not missing a trick on tax reliefs while giving you peace of mind that you’ve done everything right and won’t have HMRC knocking at the door anytime soon.

If you’re worried about your side hustle falling foul of HMRC, it’s always worth speaking to a professional. BXD Accounting is on hand to advise - contact us today for a free consultation.