Do you earn income from Amazon, eBay, Etsy or other online marketplaces?

HMRC are sending letters to people who they think earn income by selling goods or services through online marketplaces. We understand that HMRC have received third-party information that they have used to identify individuals who may not have told HMRC about some or all of their income from online marketplaces. This means that those who receive these letters from HMRC may owe tax. The letters also include a certificate of tax position, which HMRC ask the individuals to complete and return to them.

The aim of the letters is to encourage people who sell goods or services through online marketplaces to bring their tax position up to date.

How do I know if I have income from online marketplaces such as Amazon, Etsy and eBay?

An online marketplace is a website or mobile phone application (app) that enables individuals and/or businesses to sell goods and services to customers. Some of the more well-known online marketplaces include Amazon, eBay, Etsy and Wayfair.

If you regularly sell goods or services through an online marketplace HMRC might consider that you are ‘trading’ and, depending on the amount of money you make, you might need to pay income tax and National Insurance contributions on your profits.

If you only sell things occasionally you should check if you need to tell HMRC about the money you make.

What should I do if I receive a letter?

Do not ignore the letter.

You should respond to HMRC by the date stated on the letter (usually within 30 days of the date HMRC issued the letter), even if you do not have any income to tell them about.

HMRC have information that shows you may have earned money from selling goods and/or services through an online marketplace, such as Amazon, eBay or Etsy. They have obtained information from third parties and carried out risk assessments. The information and risk assessment show you may not have told HMRC about all of your income.

This means that your tax position may be wrong or that you may not have paid enough tax.

If you have completed Self Assessment tax returns for previous years:

You should check your previous tax returns to ensure that they are complete and correct to the best of your knowledge and belief. In particular, you should check that you have included all the income you have earned from trading through online marketplaces and deducted all the allowable expenses you have incurred.

You might be able to make use of the £1,000 trading and miscellaneous income allowance if your gross income from trading through online marketplaces is less than £1,000. This will depend on whether you have any other sources of self-employment, casual or miscellaneous income.

Note that you should include details of all your taxable income on your tax return. So, if you have other sources of income (such as employment income, for example), check that you have also included these.

If you have not completed Self Assessment tax returns for previous years:

You should check that you do not need to tell HMRC about the money you have made through an online marketplace. You can look at HMRC’s guidance and use their online tool.

You might be able to make use of the £1,000 trading and miscellaneous income allowance if your gross income from trading through online marketplaces is less than £1,000. This will depend on whether you have any other sources of self-employment, casual or miscellaneous income.

What if I have income I need to tell HMRC about?

If you need to tell HMRC about income that you have not disclosed to them, the letter tells you to use the online Digital Disclosure Facility or Disclosure Service to do this.

You need a Government Gateway user ID and password to use the Digital Disclosure Facility. If you do not already have a user ID, you need to create one. You can do this by registering for HMRC online services.

You should tell HMRC that you intend to make a voluntary disclosure. You can do this by selecting option 1 in the ‘certificate of tax position’, or by writing separately to HMRC to advise them. You can also telephone HMRC on the number at the top of the letter or 0300 123 0998.

Whichever method you choose, you must confirm that you need to make a disclosure.

HMRC will send you an acknowledgement letter. This will tell you your Disclosure Reference Number (DRN) and your Payment Reference Number (PRN).

You should use the DRN whenever you contact HMRC about your voluntary disclosure.

You should use the PRN when you pay any tax that you owe in relation to your voluntary disclosure.

What if I do not have income I need to tell HMRC about?

If you check your tax returns and you are confident you do not have undisclosed income that you need to tell HMRC about, including the case where all of your undisclosed income (and any other trading and miscellaneous income that you have disclosed) is covered by the trading allowance, you should contact HMRC to let them know. You can either complete the certificate of tax position, write a letter or telephone HMRC. Whichever method you choose, you must confirm that you do not need to make a disclosure and explain why.

If you do not respond to HMRC’s letter they are likely to follow up. They will probably send you another letter in the first instance. If you fail to respond, HMRC may decide to open a compliance check into your tax return if you have submitted one. If you have not completed a tax return, they could issue a notice to file a tax return or issue an assessment. 

Should I complete and sign the certificate of tax position?

There is no legal obligation on you to complete and return the enclosed certificate of tax position. However, as noted above, you do need to respond to the letter from HMRC.

If you complete and sign the certificate of tax position, and in doing so make a false declaration, HMRC can prosecute you. So, you should take care when completing the certificate of tax.

You may prefer to respond to HMRC by letter, particularly if your tax affairs are not straightforward.

HMRC have confirmed that they will accept a response by letter or confirmation over the telephone as an alternative, if you choose not to complete and sign the certificate of tax position.

What happens next?

If you respond to HMRC confirming that you do have undeclared income, you will have 90 days from the date of HMRC’s acknowledgement letter to work out and pay any tax that you owe. You can use the Digital Disclosure Facility to work out and pay the tax.

Will I have to pay penalties and interest?

If you have to tell HMRC about income in response to their letter, they will treat your disclosure as a prompted disclosure. You may have to pay a penalty unless you can show that you had a reasonable excuse for not telling HMRC about the income, or that you made a genuine mistake (you did not tell HMRC about the income but took reasonable care to try to get your tax right).

HMRC charge interest on tax that you pay late. So, you will probably have to pay interest on any tax that you pay as a result of making a disclosure.

You can work out (‘self assess’) the penalties and interest you have to pay using the Digital Disclosure Facility. The Facility has calculators to help you with this.

What if I cannot pay all the tax I owe?

If you owe tax, but cannot afford to pay it all in one payment, contact HMRC. You can ask HMRC about setting up a Time to Pay arrangement. If HMRC agree to offer you a Time to Pay arrangement, this will spread the payments of tax that you owe over several months.

Where can I find more information and help?

An example of the letter and the certificate of tax position is available to view on the CIOT website.

We have published three news items that you might find helpful concerning:

• Online selling and

• How to check the tax situation if you are earning extra money

• How to use the trading allowance correctly

Our self-employment guide has a case study that shows how to fill in the self-employment pages of a Self Assessment tax return.

There is HMRC guidance about how to make a voluntary disclosure on GOV.UK.

You can find more information about tax penalties on our website.

You can find more information about what to do if you cannot pay your tax bill on our website.

If you are unsure of your tax position, you should seek independent advice. If you can afford to pay a professional tax adviser, you can find more information on how to find one on our website.

If you are on a low income and cannot afford to pay for a professional tax adviser, you should contact the tax charity TaxAid, who may be able to assist you.

If your health or personal circumstances mean that you find it difficult to deal with your tax position, you may be able to get additional help from HMRC’s Extra Support Team.