Whatnot - 2024 Tax guide - UK

This guide has been prepared by an independent third-party law firm.  Every buyer’s and seller's situation is unique and so are their specific tax circumstances. The below stated information should not be considered as tax advice, but as a general overview of relevant tax rules. Whatnot does not provide tax advice for individual situations, and therefore we strongly recommend speaking with a professional tax advisor for tailored advice.

Published July 2024

UNITED KINGDOM – TAX CONSIDERATIONS FOR UK RESIDENT WHATNOT SELLERS

If you’re a seller based in the UK and want to sell stuff through Whatnot, let’s talk taxes!

Taxes can be tricky and therefore you should keep up to date with your tax obligations and remain tax compliant. The timely preparation, filing and payment of taxes are your responsibility per the Whatnot terms of Service.

As a UK seller, make sure you are on top of the taxes that may apply to you, such as:

• Value added tax (VAT);
• Income taxes;
• National Insurance contributions (NICs); and
• Capital gains tax (CGT).

Just a heads-up: this guide covers Income tax, NICs, CGT and VAT for UK sellers. If you’re selling from outside the UK to UK consumers, it’s a different ball game.

The info in this guide isn’t all-inclusive and definitely not legal or tax advice. If you’re not sure on your local tax rules, it’s a good idea to double-check with your tax authorities or chat with a professional to get advice that is tailored to you. Whatnot cannot help you out with questions about this guide, it’s only intended as a jumping off point.

Just so you know, we don’t refresh this info on the fly. It’s best to verify if there’s been any recent changes to the laws and procedures.

Whatnot may need to report your income made through the platform to your tax authorities soon. More info on that here.

VALUE ADDED TAX

VAT can get tricky, so make sure you understand the rules as they relate to your specific situation.

When selling and shipping goods, the VAT rules vary depending on the destination where the goods are going:

• UK customers (excluding Northern Ireland): UK VAT rules will apply. 
• Northern Ireland customers: Different UK VAT rules will apply under the Northern Ireland Protocol.  
• Non-UK customers: VAT rules in the customer country will apply.

SELLING TO UK CUSTOMERS (EXCLUDING NORTHERN IRELAND)

If you’re regularly providing goods or services in the UK (not just a one-time thing), you may need to charge VAT to your customer and pay this VAT to the UK tax authorities.

Therefore, if you are selling items on the Whatnot platform, you may be required to apply UK VAT to the item price and pay this VAT amount to HMRC. You as the seller should determine whether you should charge UK VAT on the sale of your goods. More on all this below.

Do I need to charge any VAT to UK buyers if I am selling items on Whatnot?

If you regularly sell goods through Whatnot with the goal of making revenues, you may need to register for VAT and charge VAT to your buyers.

If you're a UK resident and sell products, you have to register for VAT if your sales hit £90,000 in the previous year or you expect them to go past that amount in the next month. This applies to everything you sell, even your second-hand goods. Whether you're selling on Whatnot or on another app or platform, all that income counts towards the £90,000 limit. 

This limit can change, so keep an eye on the government website or chat with your tax advisor to stay on top of things. Also don't hesitate to hit up a tax advisor if you need help to figure out if you have to register and start charging that tax.

Further guidance on registering for VAT can also be found on the HMRC website.

Should I account for VAT on the fees charged by Whatnot to me?

If you are registered for UK VAT you should be sure to add your UK VAT number to your Whatnot account via the flow described here. In such a case, Whatnot will not charge VAT on the fees charged to you. Instead, you will have to account for VAT on these fees through the so-called ‘’reverse charge’’ mechanism in your UK VAT return. 

This "reverse charge" effectively means that you have to report UK VAT on Whatnot's fees charged to you in your UK VAT return yourself. Do not worry, normally this does not result in any tax payable by you because the VAT you add on your sales (output VAT) cancels out the VAT you pay on Whatnot's fees (input VAT) in the same return. This works as long as you're not selling stuff that's exempt from VAT (which you probably aren't). If you are selling exempt stuff, the VAT you report on Whatnot's fees might not be fully recoverable. You should contact your local tax advisor to see whether you can fully deduct VAT under the reverse charge.

To report the "reverse charge" in your UK VAT return, you have to do the following:

• Report UK VAT due on the fees charged by Whatnot to you in Box 1 of your VAT return as output VAT;
• Report this VAT amount as input VAT in box 4 of your VAT return;
• Report the total amount of the fees charged by Whatnot to you as a deemed supply in box 6 of your VAT return; and
• Report the same amount as purchase value in box 7 of your VAT return.

For more information we refer to this webpage of HMRC.

VAT applies to me: how do I calculate how much VAT I need to collect from UK buyers?

VAT rates in the UK aren't set in stone, they can change sometimes. If you have to charge VAT to your buyers, it's a good idea to check with HMRC every now and then to make sure you're charging the right amount.

In the UK, the standard VAT rate for selling products is 20%, but some things like comic books and food items have a lower rate of 5% or 0%. Which rules and rate applies to a product really depends on what type of product it is.

There are also special schemes for people selling second-hand stuff and small businesses.  These deals can save you some cash on VAT.  On top of that, there are ways to make keeping track of VAT for your shop easier. See the Alternative Options below. You can also talk to your tax advisor about these special schemes if you think they might be a good fit for you.

If you supply goods free of charge to users on the Whatnot platform (for instance as a giveaway), you may need to report VAT in your VAT return on the price you paid for the purchase of that product. 

VAT applies to me: how do I collect VAT from UK customers?

If you are registered for UK VAT, you’ll need to collect the VAT from UK buyers. Then, you have to report and pay that VAT to the government through your VAT return, usually every month. 

If you have to charge VAT, the price you list an item for needs to include VAT already. Think of it like the final price with everything added in. Now, sometimes there's paperwork involved, like receipts or invoices with all the VAT details spelled out. You usually only need to issue an invoice if a business is buying from you, not individuals. For individuals, the packing slip and receipt provided by Whatnot is usually fine.

If you do issue an invoice there are some specific things you have to include on an invoice by law. Like your and your customer's full info, VAT ID numbers, and the date. Also, don't forget to mention the VAT rates and amounts. If this sounds complicated, don't worry. Just ask a local expert to make sure you're on the right track. You can find more information here.

You have to pay the VAT you collect to HMRC by filling out VAT returns.  These returns basically show how much UK VAT you collected from your sales and how much UK VAT you paid out when you bought goods and services. You only pay the difference (VAT collected - VAT paid).  An example of where you pay VAT might be on shipping supplies you purchase for your business. Depending on how much you're selling, these returns might be monthly, quarterly, or yearly. Basically, the more you sell, the more often you have to report with HMRC.

To help prepare your VAT return, you can download your order history by following the flow described here.

You’ll fill in your returns online via a special online HMRC account and some approved software. More information on setting up this account can be found here. The deadline for payment is usually 1 month and 7 days after your VAT return period ends. HMRC will give you their bank details so you can send them the VAT payment.

Information on how you can access data to prepare your VAT returns can be found here.

On top of all that, you have to keep good records of your sales and business expenses, usually digitally. Think of it like keeping a paper trail, but on your computer. Unless you get special permission, there's no escaping the digital record-keeping for VAT. This might sound complicated, but there's plenty of info out there to help!

Further guidance on filing returns can be found on the HMRC website here. 

ALTERNATIVE OPTIONS 

Second-hand goods margin scheme

The margin scheme is a special way to pay VAT in the UK for resellers. You basically only pay VAT on the profit you make when you sell something, not the whole price. But there's a catch: you can only use this scheme if you're a reseller buying and selling certain used stuff, for example from regular people or small businesses that don't charge VAT. Basically, you're buying stuff without VAT and then selling it with VAT added on your profit and not on the sales price.

Here's the breakdown:

• You pay VAT on the difference between what you bought the item for and what you sell it for.
• This VAT is a fixed rate of 16.67%.

Important note: This scheme doesn't work if you buy something with VAT already charged to you.

With the margin scheme, however, you generally can't claim back any VAT you paid on stuff you bought (and neither can your customer). 

There's no special sign-up needed to use this scheme, but you have to keep some extra records for each item you sell under it. Think receipts (invoices) for both when you buy something and when you sell it. There's also some specific info you have to put on your invoices if you're using the scheme.

The kind of products you can use this scheme for depends on if you're buying and selling in Great Britain or Northern Ireland.

Not sure if it applies to you? Best to check with a local expert to see if the margin scheme makes sense for your business. More information can also be found here: VAT margin schemes: Overview - GOV.UK (www.gov.uk). 

Flat rate scheme

This Flat Rate Scheme might be for you if you're VAT registered, selling less than £150,000 a year (without VAT), and meet a few other criteria. It basically makes VAT record-keeping a breeze. Instead of the usual back-and-forth, you just pay a flat rate percentage on your total sales to figure out your VAT bill.

There's a catch though, you can't use this Flat Rate Scheme and the second-hand margin scheme at the same time. Plus, the flat rate you pay depends on what you're selling, ranging from 4% to 16.5%. If you're interested, you have to register with HMRC.

More information can be found here: VAT Flat Rate Scheme : Work out your flat rate - GOV.UK (www.gov.uk) and here: Flat Rate Scheme for small businesses (VAT Notice 733) – GOV.UK (www.gov.uk).

SELLING TO CUSTOMERS IN NORTHERN IRELAND

Which VAT rules apply if I sell to customers in Northern Ireland?

Since Northern Ireland acts like an EU country for VAT, selling something to a Northern Irish buyer means you are exporting the products. Technically, this is an export and therefore zero-rated, but there's a twist: when the product arrives in Northern Ireland, the buyer is charged UK import VAT (which Whatnot may collect from the buyer at checkout depending on the value of the shipment). Technically, sales to Northern Irish buyers require a VAT invoice regardless of who your customer is and then declare this VAT as normal VAT on your UK VAT return. 

SELLING TO CUSTOMERS OUTSIDE THE UK

Which VAT rules apply if I sell to customers outside the UK?

Selling stuff overseas to outside the UK? That is an export, so you don't have to worry about UK VAT on that sale. There is no need to charge VAT on it. Just remember to report this sale as an export on your UK VAT return. 

INCOME TAX, NATIONAL INSURANCE CONTRIBUTIONS AND CAPITAL GAINS TAX 

If you earn income in the UK, it is likely that you will have to pay tax on this income to HMRC. If you buy goods for resale or make goods with the intention of selling them (instead of, for example, just selling some unwanted items that have been lying around your home), then what you are doing is likely to be seen as trading and you will have to pay income tax on your profits. More information on what constitutes trading can be found here.

In the future it is likely that Whatnot, and other platforms, will be obligated to report the income you earn online to HMRC.  While this won’t change the obligation you have to pay tax today, it makes it double important to make sure you are complying.

You may also have to pay Class 4 National Insurance contributions  if your income goes above a certain limit. More information on National Insurance contributions can be found here.

Assuming that you are trading, below is a brief outline of tax that may come into play, some information on how this tax can be paid to HMRC, and where you can find more information about this.

The UK’s tax year runs from 6 April to 5 April (e.g., 6 April 2023 to 5 April 2024). 

The general deadline for filing an online tax return and paying UK income tax due in respect of the 2023/2024 tax year is 31 January 2025. 

What are the UK Tax Authority contact details?

HMRC website: Income Tax: general enquiries - GOV.UK (www.gov.uk) 

What are the UK income tax rates?

UK income tax is payable on your total income in a year, including profits you make from goods you sell through websites or apps, like Whatnot.  For the 2024/2025 tax year, UK income tax rates were as follows: 

• There is a tax free personal allowance on the first £12,570 of income. 
• The "basic rate" of 20% is charged on income £0 to £37,700. People with the standard personal allowance start paying this rate on income over £12,570. 
• The "higher rate" of 40% is charged on income between £37,701 to £125,140. People with the standard personal allowance start paying this rate on income over £50,270. 
• The "additional rate" of 45% is charged on income over £125,140. 

If you're a high earner making more than £100,000, this allowance starts to shrink. For every £2 you rake in over £100,000, your allowance gets reduced by £1. No allowance at all if you hit £125,140 and above.  A link to the Government page on this is here. 

If you live in Scotland or Wales, please note that different rates may apply. You can find more information on Scottish taxpayers here and on Welsh taxpayers here. Welsh taxpayers currently pay income tax at the same rates as English and Northern Irish taxpayers as described above.  

Even if what you are doing is not seen as trading, you might have to pay Capital gains tax. Capital gains tax is a tax on the profit or gain you make when you sell something. Certain types of products could be exempt – for example, certain stuff worth less than £6,000 each or that won’t last 50 years. See HMRC guidance on this for reference.

It is the gain you make – not the amount of money you receive for the product – that is taxed. The first £3,000 (in the 2024/2025 tax year) of your gains in a year are tax-free. Any gain that is taxable will be taxed at a rate of up to 20%, although if you are a basic rate taxpayer a rate of 10% can sometimes apply. These rates assume that none of your gains relate to UK residential property. More information on your Capital gains tax obligations if you are not trading can be found here.

How do I report taxes in the UK?

A UK income tax return should be filed online using the HMRC website (please see link to the HMRC website here). Sometimes an individual can still complete a paper tax return which must be posted to the appropriate office by 31 October. You can find details of your appropriate office on the HMRC website. For complex tax returns, you may need specific software. 

In some instances, gains can be reported outside of a formal tax return. See HMRC guidance on this for reference. 

When do I have to file returns?

If you are filing a tax return online, the filing deadline is 31 January of the year after the tax year ends. Think of it like this: tax year from April 6th, 2023 until April 5th, 2024, return due by January 31st, 2025.

If you are earning trading income for the first time and do not normally submit a tax return, you will have to register with HMRC for self-assessment. The application for this must be made before 5 October following the end of the tax year you first start earning trading income. 

When do I have to make the payment?

If you have to pay tax, payment will be due on or by 31 January of the year after the tax year ends. For example for the period 6 April 2023 to 5 April 2024, payment will be due by 31 January 2025. This payment deadline applies to both returns filed online and paper returns.

If, in a previous year, your total tax liability was more than £1,000 and HMRC collected less than 80% of the total tax liability (for example, the collected tax on your employment income), HMRC can also ask for a pre-payment for the following year. Such payments are due on 31 January of the tax year and 31 July following the end of the tax year. If you have made payments on account, your final tax payment for that year will be reduced by the payments you have already made. This can sometimes even result in a refund. 

How do I work out the taxable profit?

You pay income tax on your profit, not your sales. From your total sales you can take away business expenses and purchase costs. For example, you can claim the costs of products you resell, but you cannot claim for the costs of products you use privately. The amount left after this calculation is your profit. Other examples of expense you may be able to deduct might be the cost of packing materials and Whatnot’s fees. More information on the costs you are allowed to deduct can be found here.

All your trading sales (whether you sold online or in another way) have to be included in your total sales figure. Remember to include sales to friends and family and also do not forget to include cash sales if you are also selling outside of the Whatnot platform. 

What are my UK income tax obligations for foreign income?

As a UK tax resident, you usually have to report your worldwide income on your UK tax return. If you also pay tax on the same income in another country (which may happen if that country and the UK treat you as their tax resident), maybe you can use the tax treaty between the UK and that country to get some relief. This will ensure that tax is not paid twice on the same income.

If you are not living in the UK, overseas income is generally not taxable or reportable in the UK but will likely be taxable in the country of your residence. This is however a difficult area and you should speak to your tax advisor about your tax obligations in the UK and the country of your residence.

Which records do I have to keep?

It is really important to keep good records of all your income and expenses from the start. More information on this can be found here.