February 2024 Newsletter | Cylchlythyr Misol Chwefror 2024
- In January, there was a small media storm when it was announced that a number of digital platforms, such as ebay and Vinted, were obliged to send details of customer transactions to HMRC. The reporting around this issue caused a great deal of confusion, with many thinking they had to declare all their sales on ebay or Vinted to HMRC via their tax return.
This was not correct. Tax rules remain unchanged on what needs to be reported to HMRC. Individuals have a tax-free 'trading allowance' of £1,000. Therefore, as a starting point, if your annual proceeds from selling items is less than £1,000, the income is tax-free.
Furthermore, if you do not sell items on a regular basis or if you do not intend to make a profit from selling items, you are unlikely to be classed as "carrying on a trade" by HMRC and thus the income is not taxable.
- As people continue to struggle with cost-of-living pressures, many have taken the decision to access their pension earlier than they had anticipated. When individuals withdraw from their pension for the first time, HMRC often tax this income very heavily by using 'emergency' tax codes.
This can lead to individuals receiving significantly less than they had anticipated. The overpaid tax can be reclaimed from HMRC via filling out specific forms and the refund should be processed within 30 days.
HMRC data shows that in the last 3 months of 2023, the average amount of tax repaid as a result of this pension 'emergency' tax code was £3,200 per person - a significant amount.
Ask Huw & Aled: I have been using a mobile app to buy and sell a small number of shares. I don't believe I've made any profits, but do I need to report anything to HMRC?
We have seen a remarkable rise in the number of individuals using websites and mobile apps, such as Trading 212 and eToro, to buy and sell stocks & shares online. Most use these apps as a hobby, leading to a small number of trades on a weekly basis.
This has created two areas of concern for us:
(i) Investing: a number of platforms charge a fee for each trade. Without appreciating these fees, any profits on small investments may disappear in full as a result of these charges. It is very important that people understand the risks of investing and the charges from using these platforms.
(ii) Tax: trading in stocks & shares, even on this small scale, can create tax consequences. Firstly, any dividends or interest payments need to be declared in your tax return and secondly, any 'profits' made by selling stocks & shares could be liable to capital gains tax.
Until recently, individuals had a tax-free capital gains tax allowance of £12,000, however this halved to £6,000 from 6 April 2023 and will halve again to £3,000 from 6 April 2024. This may lead to many more people having to file tax returns to declare gains made on these trading platforms.
Most of these platforms do not provide an annual statement showing the gains and losses made during the year, leaving it to the individual to calculate any potential taxable gains. This can catch people by surprise. Be aware of this when preparing annual tax information for your accountant.
