Millions of Britons could face hefty fines as taxman gains access to financial details

HMRC now holds information on 2.6 million people selling goods through online platforms such as eBay, Vinted and Etsy, compared with just 450,000 at the end of 2024, new figures provided to chartered accountants and business advisors Lubbock Fine have shown.

The sharp increase follows the introduction of new reporting rules requiring online marketplaces to share information about sellers and their earnings directly with HMRC.

Under the rules, platforms must report sellers who complete 30 or more transactions or receive at least £1,700 from sales during the year.

This means Britons earning extra money through online selling could now find their financial activity under closer scrutiny from the taxman.

However, being reported to HMRC does not automatically mean someone owes tax or faces a penalty.

Those running online businesses must generally register for VAT when their taxable turnover exceeds £90,000 over a rolling 12-month period.

Sellers who fail to register when required could face penalties reaching 15 per cent of the VAT owed, potentially leaving them with a significant bill.

Jaspal Dhillon, head of VAT at Lubbock Fine, warned: “HMRC now knows much more about online sellers than ever before.”

He explained that VAT is calculated on turnover rather than profits, meaning some traders could face tax obligations even if their businesses make relatively little money.

Once registered, businesses must charge the appropriate VAT on taxable sales and submit VAT returns to HMRC, normally every three months.

Mr Dhillon warned that many traders mistakenly believe low profits mean they have no tax obligations.

“Many online traders think that because they aren’t making much of a profit then they don’t have to worry about taxes but VAT is based on turnover and not profits,” he said.

Those who fail to register when required can face penalties escalating to 15 per cent of the VAT they owe.

Mr Dhillon added: “If you’re online trading business is approaching the VAT threshold, then there is a good chance HMRC already knows who you are and how much you have turned over.”

Mr Dhillon described the consequences of ignoring VAT obligations as severe. “The penalties for not paying VAT when it’s owed can be very unpleasant,” he said.

HMRC has also recently consulted on proposals that would shift responsibility for collecting and remitting VAT away from individual sellers and onto the platforms themselves.

This model has already been applied to overseas sellers for several years, generating £1.8billion annually in VAT revenue for the exchequer.

The success of that approach has prompted HMRC to consider extending the same requirement to all sellers operating through online marketplaces, regardless of where they are based.

For now, the obligation remains with individual traders to ensure they are properly registered and making quarterly VAT payments once their turnover crosses the £90,000 threshold.