Nudge, Nudge… Think, Think: Why HMRC may be contacting you about online sales

The first step, Promote, focuses on encouraging compliance through information campaigns. Next is Prevent, which involves efforts to stop non-compliance before it begins, such as challenging incorrect claims and discouraging contrived tax saving schemes. The final step is Respond, where HMRC acts through investigations, tax assessments, and enforcement.

As part of the preventive phase, HMRC issues “nudge letters” when it believes someone may have undeclared income. These letters are not speculative; they are based on information HMRC has gathered, suggesting that there may be tax owed.

Recent campaigns have particularly targeted individuals selling items through platforms like Vinted, eBay, and Depop. New rules require these platforms to share user data with HMRC, which makes it easier to identify regular sellers who might be generating profit.

Many platforms are marketed as ways to declutter by selling second-hand clothes or household items, often at a loss. However, what starts as a one-off clear-out can quickly turn into a small trading activity or regular source of income, which comes with tax implications.

The most recent wave of nudge letters pertains to the 2022–23 tax year, which ended on 5 April 2023. If you earned income during that year and did not declare it, interest has already started to accrue. Additionally, penalties may apply.

HMRC requires that new sources of income be declared by 6 October following the end of the tax year. If you missed this deadline and think you might be affected, now is the time to act. Fortunately, HMRC provides online tools to help taxpayers make disclosures. The sooner you engage, the better your position, and early cooperation is usually viewed favourably when considering penalties.

What If You Receive a Nudge?

• Confirm there is nothing to declare, or
• Disclose if any income has been overlooked.

These letters are triggered by patterns in your online activity. HMRC examines factors such as the frequency of your sales, the types of goods involved, and whether there’s a connection to any existing trade. This information is then cross-checked against what you have previously reported.

If your online sales consist of genuinely personal items, it’s wise to keep a simple record of what you sold, when, and for how much. This documentation provides clarity should HMRC contact you and ensures that honest mistakes are not misinterpreted.

Ignoring a nudge letter is not advisable. If you disregard it, HMRC will not forget about the issue. Instead, it may escalate into a formal inquiry, moving into the response phase of the compliance strategy.

At that point, HMRC may issue assessments for unpaid tax and request detailed evidence. Penalties can be significant, up to 100% of any unpaid tax, and with current interest rates exceeding 8%, the cost of delay can be steep.

If you receive a nudge letter or any communication from HMRC and are unsure how to respond, the key is to act quickly. In many cases, there may be a valid explanation for your situation, and early engagement can help resolve the matter efficiently.

For peace of mind, consider speaking with a qualified lawyer or accountant. If you need assistance understanding HMRC’s approach or disclosing income from online activities, please contact us for further help.