HMRC is watching your side hustle to rake in £1.8bn from 2.6m online sellers

Millions of Britons selling goods online are facing greater scrutiny from HM Revenue & Customs after the tax authority’s records of platform sellers surged from 450,000 to 2.6 million in a year, according to data obtained by accountants and business advisers Lubbock Fine.

The sharp increase follows rules introduced last year requiring online marketplaces to share information about their sellers and earnings with HMRC, giving the tax authority a substantially clearer picture of Britain’s growing online trading economy.

Platforms must report information on sellers who make at least 30 sales or receive €2,000 — approximately £1,700 — over the reporting period, according to the supplied figures.

The development has prompted warnings that traders approaching the VAT registration threshold could face unexpected bills if they fail to meet their obligations.

Jaspal Dhillon, head of VAT at Lubbock Fine, said sellers who regularly trade goods must register for VAT once their taxable turnover exceeds £90,000 a year.

“Many online traders think that because they aren’t making much of a profit then they don’t have to worry about taxes but VAT is based on turnover and not profits,” he said.

“HMRC now knows much more about online sellers than ever before. If your online trading business is approaching the VAT threshold, then there is a good chance HMRC already knows who you are and how much you have turned over.”

Once the threshold is exceeded, qualifying traders must charge the appropriate VAT on sales and submit quarterly returns and payments. Failure to register on time can trigger penalties, potentially reaching 15% of the VAT owed, depending on the circumstances.

“The penalties for not paying VAT when it’s owed can be very unpleasant,” Dhillon said.

The warning comes as HMRC considers a further shift in enforcement. Following a recent consultation, the Government is examining proposals to make retail platforms themselves responsible for collecting and paying VAT on behalf of sellers.

Such a system already applies to certain overseas sellers and has generated £1.8 billion a year in VAT for HMRC, according to the information provided.

Extending the approach to domestic traders could make tax collection more direct, placing online marketplaces at the centre of enforcement.

For Britain’s millions of online sellers, the message is increasingly clear: as digital trading grows, so too does the tax authority’s ability to track it.