Let’s Break This Down Together…
Been selling on Depop and only just realised you should have told HMRC?
From understanding the £1,000 trading allowance to navigating HMRC’s voluntary disclosure process, sorting out undeclared income can feel daunting.
But don’t worry! This guide walks you through how to fix past mistakes, reduce potential penalties, and get your Depop tax affairs back on track.
Oops! I forgot to declare my Depop income - what now?
So you’ve been selling on Depop and just realised you should have told HMRC about it? Don’t panic! This happens to many sellers, and there’s a clear path to sorting it out.
Many people earn extra money through selling online and side hustles, and these activities can have tax implications similar to Depop sales.
HMRC actually prefers when people come forward voluntarily rather than waiting until they get caught. They call this “voluntary disclosure” and it usually means smaller penalties.
The key thing is to act quickly. The longer you leave undeclared income, the more serious HMRC might consider your case, and potentially the more you’ll pay in penalties.
Our Pie tax app automatically tracks your Depop earnings to prevent future tax headaches. Or if you’re just here to get to grips with it all, let’s break it down!
How to fix undeclared Depop income with HMRC and your self assessment tax return
Your first step is to contact HMRC through their Digital Disclosure Service (DDS). This is the official channel for telling them about income you’ve previously not declared.
You’ll need to register for the service, and HMRC will then give you 90 days to work out exactly what you owe and submit your disclosure.
Gather all your Depop sales records - screenshots of your sales history, bank statements showing payments received, and any evidence of business expenses, such as packaging, postage, fees, or other expenses related to your sales.
Online marketplaces and digital platforms like Depop, eBay, or Etsy often provide sales reports that can help you track your income and expenses related to selling, making it easier to prepare your tax disclosure.
Remember to calculate how much you earned above the £1,000 trading allowance. You only need to pay tax on profits that exceed this threshold.
Be honest about why you didn’t declare the income. If it was a genuine mistake because you didn’t know the rules, say so – HMRC understands that tax can be confusing!
Do I need to pay penalties for undeclared Depop income?
Yes, there will likely be some penalties, but they’re much lower when you come forward voluntarily. I learned this firsthand when I forgot to declare some freelance income years ago.
The penalty amount depends on whether HMRC thinks you were careless, deliberate, or deliberately trying to hide income. HMRC will assess your tax liabilities and determine how much tax you owe based on your overall tax position. For a genuine mistake with voluntary disclosure, you might pay as little as 0-30% of the tax owed.
You’ll also need to pay interest on the late tax. This is calculated from when the tax should have been paid originally.
If you’re worried about affording the payment, HMRC can often arrange payment plans to spread the cost over time. Just ask when you’re discussing your case.
What happens after I disclose my Depop income?
Once you’ve submitted your disclosure, HMRC will review the information and either accept it or ask for more details.
If accepted, you’ll receive a payment request for the tax, interest and any penalties. Pay this promptly to close the matter.
Make sure you’re now registered for Self Assessment if your Depop income means you need to file tax returns going forward. This is usually necessary if you earn more than £1,000 from trading each year.
You must submit your self assessment tax returns by the assessment deadline (usually 31 January) to avoid late filing penalties and interest charges.
Keep much better records from now on! Track all sales, fees Depop charges you, and expenses like packaging and postage.
When does selling on Depop become taxable?
Many people don’t realise that casual selling can become taxable. The key is understanding the difference between clearing out your wardrobe versus “trading”.
If you’re buying items specifically to sell them on, making items to sell, or selling regularly for profit, HMRC considers this trading, even if it’s just a side hustle.
The £1,000 trading allowance means you don’t need to declare Depop income if your total sales minus Depop fees (but before other expenses) is under £1,000 in a tax year.
Online traders and anyone running a side business or earning side hustle income should be aware of new rules and tax rules, including the tax free trading allowance, personal allowance, and national insurance obligations.
Selling goods or services online, such as selling clothes online, providing services online, or selling at car boot sales, can generate extra income, additional income, or extra earnings that may be taxed.
Whether you operate as a sole trader or a limited company affects your tax position, and having a full time job can change your tax liabilities. HM Revenue now receives data from online marketplaces and digital platforms, and new tax reporting requirements (new tax) apply to side hustle earnings, hustle income, and hustle earnings.
If you also have rental income, the property allowance may apply separately. It’s important to understand how all these activities are taxed and your overall taxes due.
Remember that HMRC now receives data directly from platforms like Depop. They may already know about your sales activity even if you haven’t declared it.
Common Tax Myths for Depop Sellers
When it comes to paying tax on your Depop sales, there’s a lot of misinformation out there. Believing these common tax myths can lead to unexpected tax bills, penalties, or even trouble with HMRC. Let’s set the record straight so you can manage your tax affairs with confidence:
Myth: “I don’t need to pay tax if I’m just selling personal items.”While selling the odd personal item or clearing out your wardrobe is usually tax-free, regular selling or buying items to resell on Depop can count as trading. If your total sales go over the £1,000 trading allowance in a tax year, you may need to pay income tax and file a self assessment tax return, even if you started out just selling personal items.
Myth: “I can claim all my expenses to reduce my tax bill.”Only certain costs count as allowable expenses. For example, you can claim Depop fees, packaging, and shipping costs, but only a fair proportion of household bills if you work from home. Keeping accurate records and getting professional tax advice will help you claim the correct amount and avoid issues with your assessment tax return.
Myth: “If I make a loss, I don’t need to report anything.”Even if your Depop side hustle is running at a loss, you may still need to submit a self assessment tax return, especially if you’re self employed. Reporting losses can sometimes help offset other taxable income, but you must still keep meticulous records and follow the correct process.
Myth: “Selling on other online platforms means I don’t need to pay tax.”HMRC now receives sales information from a range of online marketplaces, not just Depop. Whether you’re selling on eBay, Vinted, Etsy, or Amazon, your total income from all platforms counts towards your trading allowance and taxable income. You need to pay tax on your profits, regardless of where you sell.
Myth: “I never need to pay capital gains tax on Depop sales.”If you’re selling high value personal items, like art, collectibles, or designer goods, you might need to pay capital gains tax if you sell them for more than you originally paid. For most Depop sellers, income tax applies to trading profits, but it’s important to know when capital gains tax could be relevant.
Final Thoughts
Taking control of your tax situation by voluntarily disclosing undeclared Depop income is always better than waiting for HMRC to find it. The process might seem scary, but it's designed to help people correct honest mistakes.
Once you've sorted out your past tax issues, you can move forward with confidence. Most Depop sellers find that keeping on top of their tax obligations isn't as complicated as they feared.
Don't let tax worries stop you from enjoying your Depop side hustle. With the right approach, you can stay compliant and focus on growing your online business.
Pie tax: Simplifying Depop Income Tax
Getting your tax affairs in order is a positive step, and the UK's first personal tax app can keep you on track going forward.
Pie tax connects directly with your bank account to automatically track your sales income in real-time. You'll never accidentally forget to declare it again.
Our simple dashboard shows you exactly when you're approaching the £1,000 trading allowance threshold. This gives you plenty of notice before tax obligations kick in.
Want to see how it works? Pop over to our website to explore how the UK's first personal tax app can make your Depop tax worries a thing of the past.
