HMRC sending “nudge” letters to social media influencers to encourage tax compliance

How is HMRC ramping up its efforts to increase compliance yield in the context of the digital sales space?

The key takeaway

Social media influencers might find that at least one of their new “followers” engages with their content over the coming months. Unfortunately for them, that follower is HMRC. HMRC is sending “nudge” letters to social media influencers and online sellers to remind them about their tax obligations. Nudge letters are an increasingly important part of HMRC’s armoury and are used to “encourage” tax compliance behaviour. In the past, HMRC has sent nudge letters in respect of cryptocurrency and offshore companies that own UK property.

The background

HMRC has announced that it is starting a new nudge letter campaign and will be writing to individuals who have sold goods or services through online platforms or created content on digital platforms. The letters remind individuals of their legal obligation to declare their profits and suggest that they make use of HMRC’s Digital Disclosure facility to put things right if they have not reported their profits or earnings.

The development

It appears that HMRC has gathered seller details from several online platforms and is using this information to guide its nudge letter campaign before a new system of transaction reporting by online platforms begins. HMRC has data on individuals using sales platforms as well as influencers, vloggers and other content creators using online platforms. 

Later this year, HMRC will be publishing regulations that will require online platforms to report on the transactions carried out through their sites. This is part of a global initiative, organised through the Organisation for Economic and Cooperation Development (OECD), for tax authorities to share information on online trading and platforms.

Why is this important?

Regularising your tax arrears can be costly but the longer you leave it the more expensive it is likely to become, particularly when HMRC’s late payment interest is 6.5%. Over time, the risk of being prosecuted by HMRC increases. Once HMRC starts to get regular transaction reports from online platforms it is expected to launch tax enquiries and tax fraud investigations into online sellers and influencers whose tax affairs are not up to date. HMRC has wide tax enforcement powers – everything from charging penalties that could leave you paying more than twice what you would have by reporting on time, to raiding premises and bringing criminal prosecutions. 

When HMRC issues a nudge letter to a taxpayer it is likely that, should any tax (or additional tax) be due, it will impose a higher penalty than if the taxpayer had made a voluntary unprompted disclosure to HMRC.

Any practical tips?

If you live in the UK and make a profit from selling goods online or earn an income from online activity then, subject to a small de minimis limit (£1,000 a year), that profit is taxable and must be reported to HMRC through a tax return. Income from creating content on digital platforms is also taxable. Even if this is not your main source of income, it must be declared and any tax due paid to HMRC. HMRC’s nudge letters suggest that individuals make disclosure through its Digital Disclosure facility. However, making a mistake on a disclosure can have serious consequences and, depending on your personal circumstances, there may be a better way to make an appropriate tax disclosure. 

Spring 2023