Wilfrid’s comments were published in Tatler, 25 January 2024, and can be found here.
How high-net-worths might be impacted by HMRC’s new ‘side hustle’ crackdown
Those who sell or trade luxury goods may well find themselves facing fines
Earlier this month, HMRC announced a new crackdown on those selling on digital platforms such as Airbnb, eBay and Vinted. While this so-called ‘side-hustle’ isn’t exactly a new tax, this means people who have never declared their income from these sites could find themselves facing a fine.
For high-net-worth individuals who sell or trade luxury goods – whether that’s a second-hand Hermès handbag, classic car or for those who rent out one of their (many) luxury holiday homes, they could now find themselves on HMRC’s hit list.
‘The new “side hustle tax” IS an unfortunate term because it isn’t actually a new tax, but rather a new set of powers which allow HMRC to collect information from online platforms to enforce existing tax laws,’ says Matt Greene, Partner at Stewarts. He adds: ‘Put simply, HMRC want information from these platforms so they can check whether the users are paying the right amount of tax. Apps or website on which people provide goods or services directly to the public such as eBay, Etsy, or Vinted will be affected. They will have to provide details on number of transactions and amount of revenue passing to taxpayers.’
So, how exactly is this going to affect high-net-worths?
Wilfrid Vernor-Miles, Partner at Hunters, tells Tatler, ‘It depends on the nature and frequency of the transactions but selling one’s own goods is unlikely to be a taxable side hustle, especially in the usual scenario. Selling last year’s well used Chanel clutch for a £1,000 loss is neither trading income (nor for that matter an allowable trading loss). But buying a new one with a view to selling online in China for a profit would be. Consider, are you selling stock acquired for the purpose of sale at a profit, or your own possessions to recoup some of the original cost?’
Greene suggests that some UHNWs may be affected more than others. ‘If they are selling their own branded luxury goods, they are very likely to be within the scope of income tax because their activities will look like a trade to HMRC. Assuming that the sales exceed the various tax-free allowances, they ought to be declaring this on their self-assessment tax returns anyway – and are likely to get penalised if they do not.’ Greene continues:’ Someone who makes more than £85,000 in sales in a year will need to register for VAT if they are doing so in the course of their business. And don’t forget that, even if they aren’t trading, there could be capital gains tax on sales of some high value items such as jewellery or artworks. UHNWs already tend to have family offices and professional advisers on-hand to deal with their tax affairs – it’s important that they are kept updated on any significant transactions.’
For those who might suddenly find themselves under tax spotlight, the experts agree that following the law and declaring the goods is paramount. ‘If it’s taxable (like trading goods online for a profit or renting out spare rooms or a parking space), then declare it,’ advises Vernor-Miles.
Greene adds: ‘The way the UK tax system works is that the onus is on the taxpayer to work out and declare how much tax should be paid. If they have got anything wrong in previous years, they may need to get in touch with HMRC to make a disclosure which usually means that any penalties will be far lower than if HMRC discovers their non-compliance through another channel. They will need to pay the unpaid tax and also interest which can be substantial, especially given that interest rates are currently high.’
People should always be sceptical of anyone offering an easy way out of any taxes that are due, warns Greene. ‘There are legitimate ways to reduce the tax bill, by claiming any available reliefs such as for losses in previous years, and of course by keeping evidence of any relevant expenses. It’s also worth noting that the tax payable might in some circumstances depend on someone’s tax residence status at the time. This is a complex area so anyone concerned should always take proper professional advice.’
For more gold-standard guidance on tax, property and wealth management, visit the Tatler High Net Worth Address Book.