5 things You Should Know About the New Digital Platform Regulations

If you are a small business owner, entrepreneur or entity operating in the UK and selling goods and services on digital platforms such as Etsy or providing accommodation through services like AirBnb, there is a new regulation you need to be aware of.

In January 2024, HM Revenue and Customs (HMRC) introduced new digital platform regulations with the goal of streamlining tax processes, driving efficiencies and cracking down on tax evasion. The revised guidelines aim to modernise and digitalise the collection of taxes for those using digital platforms, providing easier access for both businesses and individuals.

UK digital platforms are required to gather, retain and report information to HMRC about the income of sellers of goods and services on their platform. The regulations apply from 1 January 2024, with reporting due by January 2025.

By using the information collected by digital platforms, HMRC aims to enhance compliance and minimise mistakes in tax reporting. This shift towards digitisation promotes transparency and accountability, enabling better tracking and monitoring of financial data.

How to pay taxes through Open Banking on the HMRC website

What is the reason for the update of the regulation?

The rise in digital platforms, including online marketplaces, e-commerce websites, and sharing economy platforms, has provided individuals and businesses with new opportunities to generate income. Small business owners and entrepreneurs have had the opportunity to scale online and access a world of new customers via websites and marketplaces.

HMRC's latest regulations aim to tackle the challenges posed by the changing digital commerce landscape. These regulations strive to ensure that all income earned from digital platforms is accurately reported and taxed.

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Who is likely to be affected?

According to the HMRC website, the measure will affect digital platforms in the UK that facilitate the provision of services or the sale of goods by UK or other taxpayers. This means online platforms marketplaces like Vinted and Etsy, as well as food delivery such as Deliveroo and JustEat or taxi services such as Bolt or Uber.

Further, accommodation services like Airbnb, Vrbo or Booking.com are also being affected along with small businesses selling via Amazon's vast online marketplace. Freelancers on Fiverr or UpWork are also likely to be affected.

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Reporting rules are limited to Platforms which facilitate the provision of certain activities, or Relevant activities by Sellers. A relevant activity is defined as a relevant service or the sale of goods. A relevant service is further defined as the rental of immovable property, a Personal Service, or the rental of a means of transport. Let's break down what each of these mean:

Personal Service: A personal service is a service involving time or task-based work performed by one or more individuals at the request of a user. The definition is wide but examples include:

• transport services (such as taxi and private vehicle hire with a driver)
• delivery of goods or services (for example, food delivery)
• online services (such as IT services, data entry/manipulation, copywriting)
• freelance and professional work (for example, accountancy, tutoring, legal advice)
• provision of labour (such as cleaning, gardening, renovation)
• seasonal and temporary work (for example, event management, catering)

Immoveable Property Rental: includes both residential and commercial property, as well as other fixed property such as parking spaces.

Rental of a Means of Transport: includes any vehicle, whether or not motorised, and any other equipment or devices designed to transport goods or persons from one place to another, which might be pulled or drawn or pushed and which are normally designed and capable of being used for the transport of goods and persons.

Sale of Goods: define goods as “any tangible property” and a tangible object is one that can be touched. Consequently, the sale of any goods which are intangible, such as rights or vouchers, do not fall within the definition and are not in scope of the rules. This will also include the sale of items, such as online tickets, which are intangible but could be printed out as they are essentially intangible in nature. However, there are exclusions to this rule if a voucher entitles the redemption of a relevant activity so it is important to read the guidance carefully.

Did you know that you can withdraw directly from Etsy, Fiverr and Amazon in multiple currencies with your Wise Business account?
Withdraw money in the currency your customers pay you in including GBP, EUR or USD, reducing currency exchange costs. Transfer your multi-currency payments in your Wise app with fast, transparent and low cost fees. International customers will appreciate the ability to pay in their local currency, avoiding any additional costs and fees along the way.

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What is required for digital platforms to report on?

One of the key aspects of the new regulations is the requirement for digital platforms to provide detailed reports to HMRC on the income earned by their users. This reporting will enable HMRC to track and verify income data more effectively, reducing the likelihood of underreporting or tax evasion. The information to be reported includes full names, addresses, taxpayer identification numbers, dates of birth or business registration numbers of sellers, along with details of the transactions in which they were involved.

HMRC full guidance

Digital platforms are required to verify this collected information and electronically submit it annually to HMRC by 31 January following the end of the calendar year to which the information relates. Additionally, digital platforms must provide each seller with the relevant information within the same timeframe. Failure to comply with these reporting requirements can result in penalties imposed by HMRC.

The data gathered by digital platforms and disclosed to HMRC includes (but is not limited to):
Full names (individuals) or legal name of the entity (businesses) Addresses Taxpayer identification numbers Dates of birth or business registration numbers Bank account information if held by the platform Details of transactions in which sellers were involved

What are the benefits of this regulation?

The digitisation of tax compliance processes can lead to greater efficiency and effectiveness in managing tax obligations for small business owners. With real-time access to income data and automated reporting systems, businesses can proactively monitor their tax liabilities and make informed decisions.

By seamlessly incorporating digital platforms into tax systems, smoother interactions can be achieved among businesses, taxpayers, and tax authorities. This can ultimately lead to a more transparent and compliant tax environment.

What do you need to do if you operate on any of the digital platforms?

Individuals earning less than £1,000 per tax year are not required to register for Self Assessment or pay tax on that income. However, those who earn above this amount may need to register and can obtain further information by visiting the official website or contacting the government’s Self Assessment helpline on 0300 200 3310.

Self-assessment is a UK-system where individuals or businesses assess and report their own income, gains, and liabilities to HM Revenue & Customs for tax purposes.

It's important to note that this income still needs to be declared via self-assessment, as the information supplied to HMRC will not automatically be added to your return. It is the responsibility of the individual or business to declare the income to HMRC. Additionally, sellers are entitled to a £1,000 trading allowance per tax year, which can be offset against the turnover generated from their activities.

There are different ways to pay for your self-assessment tax, including providing account details, credit card details or through Open Banking. Open Banking can streamline the way you pay taxes, without the need to provide any additional information, allowing you instead to approve your payment in your banking app.

Paying taxes in multiple currencies through Open Banking on the HMRC website

To simplify the process of paying taxes, Open Banking provides an option to eliminate the need for entering debit card, credit card or account details on the HMRC website. This feature can be particularly beneficial for those operating in the UK but utilising their international Wise Business account. For further information on how to pay taxes seamlessly through Open Banking using your Wise Business account in the most suitable currency, click the button below.

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If you have questions about your taxes, filing a return or tax reporting— speak to a qualified professional. Wise can’t give you advice on your personal tax situation, and this article is meant for information purposes only.