Selling second hand clothing? 10 HMRC hacks you need to know

There’s been a wave of confusion on social media surrounding the new tax rules for side hustlers. 

The government asserts that “there is no new side hustle tax” and it’s simply an existing law that’s back in the spotlight. 

But the reality is that Since January 1 2024, people selling on platforms like Vinted, eBay, and Etsy will need to register for self-assessment with HMRC if they make more than £1,000 in sales.

What if all the drama isn’t for you? What if you just want to sell a couple bits here and there without the need for accounting software? What should you do to ensure you don’t hit the threshold?  

In this article, we will unravel the intricacies of the side hustle tax, offering practical tips and strategies to help you stay within the threshold and continue your selling ventures seamlessly.

10 essential strategies to avoid the side hustle tax

Let’s break down the current situation for Vinted, Ebay, Depop and other clothing sellers and outline the actionable steps you can use to protect yourselves.

1. Explore clever pricing strategies

Explore pricing strategies that keep your annual earnings below £1,000, helping you avoid the need to notify HMRC. This could involve bundling items, offering discounts, or strategic markdowns.

2. Sell from your wardrobe

Focus on selling items from your personal wardrobe rather than making intentional purchases for profit. This helps clarify your status and simplifies your financial dealings.

By focusing on selling items from your own wardrobe, you emphasise the personal, non-commercial nature of the transactions. 

This distinction helps clarify that your selling activities are primarily driven by the desire to declutter or recycle personal items, as opposed to excessive amounts of profit, and can help provide leniency and support if you are ever to get into any tax difficulties accidentally.

3. Keep a tally for future planning

Maintain a detailed record of your earnings throughout the year, ensuring you’re aware of approaching the £1,000 threshold. For this, you can use tools like accounting software. This not only streamlines your financial management but also ensures you can easily provide necessary information if required.

4. Separate business and personal finances

Establish a clear separation between your business and personal finances. This distinction not only saves time during filing but also enhances the clarity of your financial dealings. It will be crucial for you to receive the deductions you may be entitled to if you ever do decide to become self-employed or start a business full-time.

5. Time your sales

Be mindful of the timing of your sales to manage your income throughout the tax year. Keeping track of your earnings and strategically planning when to list higher-value items can help you avoid surpassing the threshold. Spacing out your sales over different months can contribute to staying below the annual limit.

6. Set a max profit monthly

Establishing a monthly profit goal is a proactive measure to prevent unintentional breaches of the £1,000 threshold. 

Setting a monthly profit cap not only aids in compliance but also provides a clear financial target, enabling you to manage your business strategically and make informed decisions about your selling activities.

7. Create a waitlist

Implementing a waitlist system proves beneficial, especially for items in high demand. This strategy involves allowing customers to express their interest in a product that may currently be out of stock or unavailable. 

By doing so, you not only effectively manage your inventory but also strategically control the release of popular items. This approach prevents a sudden and overwhelming surge in profits that could potentially push you beyond the threshold. 

The waitlist system can foster a sense of anticipation among customers and provides you with the opportunity to gradually fulfil orders, maintaining a steady income flow while staying within the regulatory boundaries.

8. Use ‘just in time’ inventory

“Just-in-time inventory” involves minimising the amount of inventory you hold, by only acquiring and listing items for sale precisely when they are wanted, rather than maintaining a large, constant inventory.

By employing just-in-time inventory for your side hustle, you can potentially control your earnings more strategically to stay within the £1,000 threshold – and as mentioned before, shows good faith that you are running your side hustle more as a friendly pop up than a vehicle for huge profit. This method also allows you to align your inventory with customer demand, reducing the risk of exceeding the threshold due to sudden surges in sales.

9. Sell seasonally

Align your selling activities with seasonal demand and strategically plan promotions during peak periods. By tailoring your listings to match seasonal trends and capitalising on high-demand periods, you can optimise your sales and hit £999 in one season.

This approach allows you to leverage the ebb and flow of consumer interest throughout the year, ensuring a balanced and controlled income stream. Additionally, consider offering special promotions or discounts during specific seasons to attract buyers while managing your overall earnings within the regulatory limits.

10. Track your expenses

Keep a meticulous record of your business-related expenses, including equipment and marketing costs. This is excellent practice in relation to the next part of this article because it can potentially help you to reduce your taxable income.

Three burning questions about the side hustle tax

There’s been a lot of confusion. These are the three most common questions that we’re happy to clarify.

“Will the new £1,000 threshold affect my job?”

If you’re concerned about the impact of the £1,000 threshold on your primary job, rest assured that this threshold is specific to your side business activities, such as selling second-hand items online. 

The regulations introduced by HMRC are designed to govern earnings from additional revenue streams and do not directly influence your main job or employment. 

Your primary employment remains separate, and the reporting threshold is applicable only in the context of your side hustle. It is crucial, however, to manage both aspects of your income diligently, ensuring compliance with HMRC regulations for each to navigate these dual income and taxation streams smoothly.

“What counts as second-hand clothing?”

Second-hand clothing refers to garments or apparel that have been previously owned, worn, or used by someone else before being offered for resale. 

These items have typically been pre-loved and may show varying degrees of wear, although they are still in a condition suitable for continued use. 

Second-hand clothing encompasses a wide range of apparel, including but not limited to:

• Clothes from personal wardrobes: items that individuals no longer need or want from their wardrobes, such as outgrown children’s clothing or pieces that no longer fit the owner’s style.
• Thrift store finds: clothing purchased second-hand from thrift stores, charity shops, or resale boutiques.
• Vintage clothing: garments that are considered vintage, typically dating back at least 20 years, and often possessing unique styles or designs from a specific era.
• Hand-me-downs: clothing passed down from one family member to another, especially common for children’s clothing.
• Resale items: clothing sold on various online platforms or through consignment stores as a means of giving pre-owned garments a new life.
• Gently used or like-new clothing: apparel that may have been worn sparingly and remains in excellent condition, showcasing minimal signs of wear.

“Should I call HMRC to ask?”

While reaching out to HMRC might seem like a logical step in the face of understanding technicalities, it’s worth noting that they have a limited workforce, with only 24 people handling inquiries for the entire UK, according to Go Simple Tax. 

This could result in pretty lengthy wait times and a lot of potential frustration.

What might registering do for me?

Let’s just say you’re tired of trying to evade it all and you’re okay with registering. (It’s not a death sentence, after all.) 

While registering as a company can afford you ‘full expensing‘ if you need it in your first year of business (as mandated by Chancellor Jeremy Hunt’s Autumn statement) – there are actually a wealth of benefits you could afford yourself if you register as self-employed or as a sole trader too, if you take the plunge. 

If you are reaching over £1,000, it actually means you’re a great seller who has the potential to make much more – so why not make the most of it? 

It also doesn’t mean you have to give up your day job; you can be employed and self-employed at the same time in the UK. All it really means is that you’ll have to fill out one extra form a year called a self assessment, providing information about your activities. The best practice? To seek legal or accounting counsel to help you with all of that, and to iron out the details annually.

The great thing about self-assessment though is that you can also detail your expenses – and the qualifying ones are deducted from your profits. So effectively, you’re being reimbursed for the costs of running your business.

Conclusion

The journey of selling second-hand items in the face of the side hustle tax regulations may seem daunting, but it doesn’t have to be. Using the practical tips and strategies outlined in this article, you can navigate the landscape of online selling with confidence. 

Selling from your personal wardrobe, utilising clever pricing strategies, and adopting smart business practices not only helps you stay within the £1,000 threshold but also ensures a smoother, more enjoyable experience. 

So, continue with your passion for recycling fashion, confident that with a mindful approach, you can both enjoy the process and successfully navigate the evolving regulatory environment. Happy selling!