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Digital platforms such as Vinted, eBay, and Etsy are set to undergo a transformative change from January 2024 as new regulations are introduced mandating such platforms record and report seller data to HMRC. This shift is expected to enhance tax compliance and transparency in the digital marketplace in a move towards a more regulated environment.
The impetus for change
The rapid growth of the digital economy has presented both opportunities and challenges, especially in terms of tax collection. Traditional tax systems were not always equipped to effectively capture revenue generated through online transactions.
Following discussions with the OECD, who published the “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy (MDRP)” in July 2020, the UK has sought to implement this model in order to further address the tax gap in the gig economy and to ensure that individuals operating on digital platforms contribute their fair share to public finances.
Key provisions of the regulation
Starting January 2024, digital platforms operating in the UK will be obligated to report specific data about their sellers to HMRC. This includes details such as the amount of income earned by sellers on the platform, transaction volumes, and related financial information. The objective is to create a comprehensive database that allows HMRC to cross-reference reported income with tax filings, further supporting HMRC’s compliance activities.
This information will also be shared with other participating tax authorities for the jurisdictions where the sellers are tax resident. Likewise, HMRC will also receive information regarding UK residents from overseas tax authorities.
Impact on sellers
For individuals selling goods or services on platforms like Vinted, eBay, and Etsy, this regulatory shift will require a heightened awareness of their tax obligations. Sellers will need to ensure that their income is accurately reported to HMRC, as any disparities between platform data and tax filings may trigger enquiries, and potential penalties where income has been misreported.
Platforms’ role in compliance
Digital platforms will play a pivotal role in facilitating this transition. As platforms may face severe fines and penalties for failing to submit accurate reports, or for submitting incomplete, inaccurate, or unverified seller data, there is a great incentive to meet these reporting obligations.
They will need to develop robust systems for collecting and reporting seller data to HMRC in a secure and efficient manner. This may involve implementing new technologies, enhancing data encryption protocols, and providing sellers with clear guidelines on tax compliance.
Preparing for change
As the deadline approaches, sellers and digital platforms alike should proactively prepare for the new reporting requirements. Sellers are encouraged to keep accurate records of their transactions and income, ensuring alignment with the data reported by the platforms. Individuals who do need to pay tax on sales made through an online marketplace will need to register for Self-Assessment, if not already registered. It is advised for historical issues that require reporting to HMRC to be regularised at the earliest opportunity, rather than awaiting HMRC action.
Simultaneously, platforms should invest in educating their users on the upcoming changes and provide them with the necessary tools for seamless compliance.
The impending requirement for digital platforms to report seller data to HMRC marks a significant milestone in the evolution of the digital marketplace. This move reflects a commitment to fostering a fair and transparent environment, ensuring that all participants contribute equitably to the tax system. As the implementation date approaches, collaboration between sellers, platforms, and regulatory authorities will be key to navigating the changing landscape of online commerce in the UK.
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