…additional administrative costs!
Back in the 2021 Spring Budget, the UK Government committed to implementing the OECD's “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy”. Broadly speaking, the Model Rules (as amended by the “Model Reporting Rules for Digital Platforms: International Exchange Framework and Optional Module for sale of goods”) aimed to enhance compliance around business activity driven through digital platforms and minimise compliance burdens, promote standardisation of reporting rules between jurisdictions and facilitate the exchange of information between jurisdictions.
Following on from this, from 1 January 2024, certain digital platform operators that facilitate the provision of services or the sale of goods need to have enhanced due diligence procedures in place to:
- collect and verify information about:
- sellers who use their platforms; and
- property listings on their platforms; and
- identify ‘reportable sellers’ (which includes sellers who used their platforms to undertake more than 30 transactions and who received more than 2,000 EUR in consideration for such transactions per calendar year).
Platform operators affected by the new rules are known as ‘reporting platform operators’. Some platform operators can apply to HMRC to be exempt from the new rules.
Reporting platform operators will need to use the information they collect to send an electronic report to HMRC on or before 31 January following the end of the previous calendar year. So, the first reports are due to be filed with HMRC by 31 January 2025. The information to be provided to HMRC in the report will differ depending on what the platform is being used for. For example, reporting platform operators will need to provide slightly different information to HMRC if a reportable seller is using their platform to sell second hand clothes than the information they would need to provide to HMRC if a reportable seller is using their platform to rent out a property. Reporting platform operators will also need to remember to inform reportable sellers of the information they have sent to HMRC about them - if they don't then they could be liable to penalties.
Reporting platform operators should bear in mind when setting up systems to capture the necessary due diligence information that they will need to keep this information for 5 years from the day after the end of the relevant calendar year.
Failure to comply risks the inevitable penalties.
Given the UK rules are now ‘live’ it is important that digital platforms:
- familiarise themselves with them as soon as possible (to the extent they have not already done so);
- determine if they are a ‘reporting platform operator’; and
- (to the extent the rules apply to them) make sure they have adequate due diligence procedures in place to obtain the information they will need to lodge reports with HMRC.
Some of the mainstream press reporting on this has been confusing - some have claimed that this represents a new ‘side hustle tax’! The rules on what is actually taxable for UK-resident sellers have not changed at all. But these new rules are absolutely designed to flush out some of the (perhaps smaller-scale) businesses that have been operating below their radar.
This measure is expected to have a significant impact on UK digital platform operators who will have to collect specific pieces of information about sellers, which some platforms will not already collect.