Why HMRC Should Start A Bank Account

Last year there was a bit of a hullabaloo in the UK when news broke that HMRC had been granted new powers to swoop into your bank account and grab money if you had the audacity to sell things on eBay, Vinted, or any other online platform. Which opened up a lot of questions. At what point does your side hustle become a fully fledged business and should the tax man have such power?

How Big Is The Problem?

The UK's "tax gap"—the difference between the tax that should be collected and what is actually received—was estimated at ￡39.8 billion, or 5% of expected revenue, for the 2022-23 fiscal year. However, some believe this figure might be underestimated. A recent report by the House of Commons Public Accounts Committee suggests that HMRC may not be fully accounting for all tax evasion activities, indicating the actual tax gap could be higher.

It is perhaps with this background that the government is now looking at people's side incomes. But how much doe people actually make? A report from The Motley Fool UK indicates that nearly 50% of Brits have a side hustle, earning them ￡1,096 per month on average. Selling on eBay is highlighted as a popular second source of income, suggesting that many use the platform to supplement their primary earnings.

In 2021, UK Hosts on Airbnb collectively earned more than ￡1.5 billion, with the typical Host earning just over ￡6,000 annually. Sites like OnlyFans have also generated significant incomes for some members, although it should be noted that the average creator earns approximately ￡1,032 annually.

Is Selling Your Old Toys On eBay Really Tax Fraud?

Now, I get it. No one likes paying tax. But here’s where I sit on this: tax avoidance isn’t exactly a cool thing to do. I know in some parts of the world (cough America cough), dodging tax is seen as a smart financial move, but here in the UK, we tend to frown upon that sort of thing. We all use roads, hospitals, and schools, and those things don’t pay for themselves. So, if you’re running a side hustle and making real money, it’s only fair that you contribute.

That being said, I do understand the concerns. The law was designed to catch people skirting tax laws with full-blown businesses, not to punish the average person selling their old DVD box sets. The fear was that HMRC wouldn’t take context into account, that selling a few bits and bobs online could suddenly classify you as a full-fledged business owner, requiring you to register, fill out a million self-assessment forms, all for a tiny profit.

People were obviously fuming at the idea of being double-taxed—once when they originally bought an item and again when they sold it on. Some feared that this would discourage second-hand selling, leading to more waste and less recycling. Others worried that it would drive people to open multiple bank accounts in some ill-fated attempt to outsmart the taxman.

What Actually Changed?

HMRC clarified in December 2024 that no, they are not introducing a new tax on your old toys, vintage jeans, or grandma’s teapot collection. What has changed is the way online platforms report information. As of 2024, sites like eBay, Vinted, and Airbnb must share certain data with HMRC if a seller has made at least ￡1,700 or sold 30+ items in a year. That’s it.

So, if you’ve been casually clearing out your wardrobe or offloading unwanted Christmas presents, you can breathe easy. HMRC isn’t coming for your pennies. The reporting rule is meant to flag people running actual businesses under the radar, those making a decent profit and, inconveniently, not paying tax on it. Which, let’s be honest, is fair enough.

Make Tax Easier

When I used to be self-employed, I had a little drinking game to get through my tax return. Every time I had to hit the ‘Help’ button on HMRC’s website, I took a sip. I’ll just say this: by the end of the evening, my tax return was no closer to being filed, but I was certainly very close to passing out.

The real issue here is that the tax system is needlessly complicated. If we want people to pay their fair share, we need to make it easy. My grand idea? HMRC should introduce a dedicated business-lite bank account.

• You make money, the money goes into this account.
• Tax is automatically calculated and deducted.
• No faffing about with forms.
• No accidental tax fraud.
• We can set up a website in hours, why not a business?

We live in an age of AI and automation, surely the technology exists today where hMRC could easily roll this out, at a time when many are bemoaning the loss of entrepreneurs and it would have a positive impact. It could also be offered through different banks - creating fresh competition in the FS space. In short, If you make the admin of running a business easy, more people will be inclined to play by the rules and you'll close that tax gap.

The Final Takeaway

To wrap things up:

1. No, HMRC isn’t going to start looting your bank account for selling your kid’s old toys on eBay.
2. If you’re running a proper side business, then yes, you should be paying tax.
3. The tax system should be simpler.

Let me know your thoughts below!