HMRC targets on online traders, influencers and vloggers

HMRC has announced that it is starting a new campaign of nudge letters and will be writing to individuals who have sold goods or services through online platforms or created content on digital platforms. The letters remind individuals of their legal obligation to declare their profits and suggest that they make use of HMRC’s Digital Disclosure facility to put things right if they have not reported their profits or earnings before.

How does HMRC know?

It appears that HMRC has gathered seller details from a number of online platforms and is using it to run this nudge exercise now before a new system of transaction reporting by online platforms begins. From the tone of the nudge letters, HMRC clearly has data on individuals using sales platforms as well as influencers, vloggers and other content creators using online platforms.

Later this year HMRC will be publishing regulations that will require online platforms to report on the transactions carried out through their sites. This is part of a Global initiative organised through the OECD for tax authorities to share information on online trading and platforms will start to report to HMRC for the 2024 calendar year – read more here.

What has to be reported?

If you live in the UK and make a profit from selling goods online or earn an income from online activity then, subject to a small de minimis limit (£1,000 a year), this profit is taxable and must be reported to HMRC through a tax return. Income from creating content on digital platforms is also taxable. Even if this is not your main source of income, it must be declared and any tax due paid over to HMRC.

Why put things right now?

Sorting out tax arrears is costly but the longer you leave it the more expensive it gets and, over time, the risk of being prosecuted by HMRC increases.

Once HMRC starts to get regular transaction reports from online platforms it is expected to launch tax enquiries and tax fraud investigations into online sellers and earners whose tax records do not tie up - especially those who aren’t even registered with HMRC. It has increasingly wide tax enforcement powers – everything from charging penalties that could leave you paying more than twice what you would have by reporting on time, to raiding premises and taking criminal prosecutions.

When HMRC issues nudge letters to taxpayers over potential tax arrears, it is likely that, should any tax be due, it will be able to charge higher tax penalties when the arrears are finally sorted out. The tax system allows HMRC to charge higher penalties (a % of the tax) where individuals make tax disclosures after being ‘prompted’ than if they had simply spotted their own mistake and voluntarily corrected their taxes: a nudge letter is regarded as prompting the individual.

What to do

If you have received a nudge letter from HMRC, there is no need to panic but, equally, you do need to take action quickly.

If you have already reported all your profits and earnings, from online platforms and other sources, there may be nothing to worry about, but now would be a good time to double check that everything is in order and up to date before replying to HMRC. 

If you have not yet registered with HMRC or may not have reported all your profits and earnings, then it is time to bring things up to date - but it is usually best to get expert advice on doing so.

HMRC’s nudge letters suggest that individuals make disclosure through its Digital Disclosure facility but you should not fill in forms in haste – making a mistake on a disclosure can lead to even larger penalties and, depending on your precise circumstances, there may be better ways to make the tax disclosure. For example, some tax disclosure routes eliminate the risk of criminal prosecution by HMRC – but this is still possible if you use the Digital Disclosure Facility.

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