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The UK’s so-called “side hustle” tax is causing confusion among thrifters and resellers who are unsure whether or not the money they made in Depop and Ebay flips must be reported as taxable income.
Though the tax is not new, the government is clamping down on it — from 1 January 2024, platforms that enable secondary income streams must collect and share details of transactions with HM Revenue and Customs (HMRC). This has prompted concern among some in the fashion industry that it could set back circularity efforts, putting people off reselling their unwanted clothing for fear of running afoul of the tax authorities.
The law requires anyone in the UK that earns more than £1,000 per year in side hustles — such as selling goods online, renting goods peer-to-peer, operating short-term vacation rentals, food delivery services and taxi hires — to register as self-employed, document each transaction and submit that information to HMRC. The law primarily impacts luxury resellers, upcyclers and flippers, whose sales would be considered trading, rather than casual resellers seeking to give unwanted items a second life. Anything sold for less than its purchase price does not count as taxable income.
From now on, all businesses that support secondary income streams must report how much each user earns to HMRC by January 2025. Non-compliance will result in fines and penalties. Platforms must report all accounts, regardless of profits earned — which is contributing to the confusion. Sellers are now wondering whether or not they must track all of their sales.
The new measures are part of the Organisation for Economic Cooperation and Development (OECD)’s global push to tackle tax evasion, and is a significant step in formalising both side hustles and the gig economy, which has blurred the lines between contractor and employee. In the US, the Internal Revenue Service (IRS) proposed a tax law last year that would lower the threshold of reportable income on third-party payment platforms like Venmo and Paypal, typically used for side hustle and gig work income, from $20,000 to $600 per year. After pushback, the IRS postponed the implementation of the rule until the 2024 tax year.
For UK-based clothing resellers who have made a profit flipping goods on platforms including Depop, Vestiaire Collective and Ebay, the tax could cut into earnings. Critics worry that it will hinder the resale and rental industries — key components of a circular economy.
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Depop reported that while clothing sellers make between £350 and £5,000 annually on the platform, the average is £437 per year, and while casual resellers don’t typically top £1,000, there’s likely to be a knock-on effect on flippers as well as luxury resellers, who deal in items with high average price points. Luxury resale platform Sellier, which resells coveted items such as vintage Hermès, Chanel and Dior bags, says its average order value in December was £3,000. Most sellers consign products valued at a minimum of £1,000, says CEO Hanushka Toni, but a typical consignment can range between £10-30,000, earning the seller 70 to 80 per cent of the sale price. Many of Sellier’s users are semi-professional resellers who supplement their income through buying and trading rare items.
“We anticipate that some of these individuals will leave the market altogether whilst others may transition to a business rather than selling as sole traders to maximise tax efficiency,” says Toni.
The £1,000 threshold applies across any platforms sellers use. Only 0.46 per cent of users on peer-to-peer fashion rental platform By Rotation would be liable to pay tax on their earnings, but only when their rentals are considered in isolation, says founder and CEO Eshita Kabra-Davies. Some make money via other platforms as well, driving up their taxable income.
Resale and rental platforms could see a decline in new and active users, as the tax law requires more effort and organisation for formerly casual side hustles. “There’s been a pretty big outrage within the resale and thrifting community. The majority of sellers are just trying to make ends meet during a cost of living crisis,” says Jack Elliott, the creative director behind DM Drama, an Instagram account that follows fashion flipping.
In April, Thredup’s annual resale report found that the resale market is expected to grow three times the rate of the overall global apparel market until 2027. The pandemic drove a rapid uptick in thrifting and reselling, as people sifted through their closets to get rid of unwanted items for money. Gen Z in particular has taken to thrifting on platforms like Depop; $2.5 billion has been made by the Depop community to date, according to the platform.
Some have interpreted the crackdown as a deterrent to entrepreneurship and circularity. The opportunity to make money was an incentive for people to enter the circular economy, says Dr Brett Staniland, a sustainable fashion influencer and model. “This tax deters people from moving into the circular economy, which is absolutely required if we don’t meet targets relating to the Paris Agreement, climate change and net zero. So why deter people from trying to get a little bit of income on the side and trying to foster sustainable habits?” Instead, he argues that the government should focus on encouraging people to buy and sell on secondhand platforms through financial incentives rather than taxing the circular economy.
By Rotation’s Kabra-Davies says she has been lobbying the government to increase the threshold since her stint on the board of Sharing Economy UK in 2020. “The government seems to have missed the circular economy angle here, because there is no distinction between people earning a bit of extra money by sharing and those driving private taxis as a profession,” she says. “If you sell one secondhand wardrobe, you almost hit your annual allowance. It’s too low, which is a real shame for circular fashion.” HMRC did not respond to a request for comment. A spokesperson for HMRC told Sky News that “the rules will also make it easier for sellers on these platforms to comply [with tax laws] and will help HMRC to detect and tackle tax evasion when they do not.”
Staniland argues that educational content is needed in order to encourage people to continue to sell on these platforms and support the circular economy. “How many people know how to do a [tax] self assessment? The platforms are the ones that can help people the most, and it’s a good incentive for them to do it because they may see a drop in their numbers.” Education is becoming a top priority for platforms like Ebay. “In light of HMRC’s new tax reporting rules, Ebay is working closely with our sellers to educate them on the changes, which won’t affect their existing tax obligations,” says a spokesperson. “We’ve launched online help and information pages outlining exactly what information we’ll need to collect, along with how their data is being robustly protected. We remain committed to supporting our thriving community and ensuring Ebay remains a destination where users can safely and easily sell their items.”
Bella Webb contributed reporting.
Clarification: This article was updated to make clearer that the tax itself is not new, but rather the reporting requirements have changed. (05/01/24)
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