HMRC’s latest wave of ‘nudge letters’ – used to prompt a response from the recipient – has been targeted at online sellers, influencers and content creators warning them that they may not have paid enough tax.
It is likely HMRC has obtained information from various online platforms and is using this as the basis for the nudge exercise. The wide range of recipients illustrates the scope of HMRC’s data analytics capabilities, as they have managed to identify people running blogs or social media accounts that include sponsorship.
Although any profit from online activity is taxable, there is an exemption if annual gross trading income does not exceed £1,000.
Certificate of tax position
Any online seller who receives a nudge letter is asked to complete a certificate of tax position within 30 days.
If the seller has undeclared income, HMRC recommends making a voluntary disclosure using its online Digital Disclosure Facility. Once HMRC is informed of the intended disclosure, they will send an acknowledgement letter. Outstanding tax must be paid within 90 days from the date of this letter.
If the seller does not need to inform HMRC of any additional income, they either have to declare that all income from online marketplace sales has been correctly declared or explain the reason why income need not be declared. This could be because of the de minimis £1,000 exemption, or if income is less than the personal allowance of £12,570.
Tax position alternatives
Unlike the self-assessment tax return, there is no legal requirement to complete and return the certificate of tax position. However, non-completion will inevitably attract more attention from HMRC.
If an online seller’s tax affairs are not straightforward, it will probably be better to respond by letter instead. A more detailed explanation of the seller’s tax affairs can then be given. Professional tax advice, is, of course, essential.
A step-by-step guide for any online sellers, influencers and content creators who need to set themselves up as self-employed can be found here.
Photo by Markus Spiske on Unsplash