10 min read
Selling on eBay, picking up freelance work, renting out a spare room for a lot of people, this kind of income barely feels like running a business. But HMRC sees it differently, and over the past couple of years, it has become considerably better at finding it.
HMRC is collecting data from platforms, banks, and payment processors, and is already writing to people whose declared income doesn’t match what those sources are showing. Letters are going out and investigations are opening.
Why HMRC is targeting undeclared online income
HMRC has developed a much deeper understanding of the e-commerce landscape — the platforms people use, how payments flow, and where income is likely to go unreported.
HMRC is already issuing ‘nudge’ letters, conducting investigations, and imposing penalties. The volume of online trading activity has made undeclared income a priority area.
How does HMRC actually find out?
This is the part that surprises most people. HMRC doesn’t rely on self-reporting to know what you’ve been earning. It’s gathering information from multiple directions simultaneously.
- Online platforms: Platforms like eBay, Etsy, and Amazon are required by law to share seller data with HMRC. That data includes transaction volumes and payment totals — enough to build a clear picture of whether someone is trading at a level that should be declared.
- Banking data: Banks are another source. HMRC has the legal authority to access financial records, and regular payments coming in from online platforms are exactly the kind of pattern it looks for.
- Social media: Social media plays a role too. If you’re publicly promoting a paid service or running what looks like a business through your Instagram or TikTok, HMRC can and does take note.
- Tips from the public: HMRC receives information from members of the public who suspect others of tax evasion.
- Publicly available information: HMRC monitors online marketplaces and social media to identify active sellers and service providers.
Taken together, it paints a picture long before any letter gets written.
Who is actually at risk?
Some groups face more scrutiny than others. Regular marketplace sellers are among the most exposed, particularly those whose sales patterns suggest a commercial operation rather than someone clearing out a spare room. Revenue alone does not determine liability either, HMRC also considers whether the activity was carried out with the intention of making a profit.
Freelancers and service providers sit in the same position. Tutors, designers, writers, and tradespeople who take cash work are all within scope. Content creators are too, whether their income comes from brand partnerships, affiliate arrangements, or advertising revenue.
Receiving products in exchange for promotion rather than payment does not necessarily keep someone off HMRC’s radar, as that can also carry a tax liability depending on the circumstances.
Landlords are another group that features in this picture. Anyone renting out a room or a second property has taxable income to declare, even where allowances apply.
What connects all of these is straightforward. Money coming in on a regular basis that has not been reported on a tax return is exactly what HMRC is now set up to find.
Will you get a letter?
It is possible. HMRC does not send these letters randomly. By the time one arrives, it already has data that identifies that you fall within this category; the letter is a prompt to get you to ensure you are ‘playing by the rules’. The letter is a chance to sort it out before things go further.
You’re more likely to receive one if:
- You sell on eBay, Etsy, Amazon, or similar platforms on a regular basis
- Freelance or self-employment payments are landing in your bank account
- You’ve been earning through content creation, brand partnerships, or affiliate income
- You rent out a property and haven’t declared the income
- Your earnings are above the £1,000 trading allowance but you haven’t registered for Self Assessment
What to do if a letter arrives
Open it, read it properly, and don’t put it to one side. HMRC’s nudge letters usually ask you to review your tax position and respond — either by confirming everything is in order or by making a disclosure.
Gather your records first. Sales figures, bank statements, invoices, receipts — whatever you have. Then either contact HMRC directly or, if the situation is at all complicated, speak to an accountant before you do.
The key thing is not to ignore it. HMRC treats people who come forward voluntarily quite differently to those who ignore correspondence altogether. The penalties tend to be lower, the process is less involved, and the likelihood of things moving into a formal investigation reduces considerably when someone engages early.
What happens if you do nothing?
The issue doesn’t go away. HMRC will follow up, and the longer it takes to resolve, the more it tends to cost.
Penalties compound. Interest accrues on unpaid tax. If HMRC has to move to a formal compliance check, it gains much wider powers to request information — not just about the year in question but potentially going back several years. In serious cases, things can move toward litigation.
None of that is inevitable. But it does become significantly more likely once someone has decided not to engage.
Getting yourself straight before a letter arrives
If you’re reading this and realise your online income hasn’t been declared, you don’t have to wait for HMRC to contact you. Voluntary disclosure is an option, and it comes with meaningfully lower penalties than being caught.
The starting point is working out what you actually owe. Pull together your records — income and expenses — for each tax year that’s relevant. If you’ve exceeded the £1,000 trading allowance, you’ll need to register for Self Assessment and submit a return.
HMRC’s lookback period depends on why the underpayment happened. For honest mistakes, they can go back 4 years. Careless errors extend that to 6 years, and deliberate concealment or failure to notify can stretch to 20. If you’ve had a letter, pull your records for the relevant period and get professional advice before responding.
An accountant can help you work out the numbers and handle the disclosure process if you’d rather not deal with it directly.
Frequently asked questions
1. What is an HMRC nudge letter?
A nudge letter, sometimes known as a ‘one-to-many letter’, is a letter HMRC sends when it has reason to believe someone is in a position to earn income that may not have been declared. It is not the opening of a formal investigation. It is essentially HMRC giving the recipient an opportunity to look at their tax position and put things right, if necessary, before anything more serious follows.
2. How does HMRC know about my online earnings?
HMRC receives data from online platforms, banks, and payment processors. It cross-references this against submitted tax returns to identify gaps.
3. Does all side hustle income need to be declared?
If your earnings exceed the £1,000 trading allowance in a tax year, yes. Below that threshold, you generally don’t need to do anything. This does not include selling your old items after having a clearout, even if that does exceed £1,000 as long as you were not selling them to make a profit.
4. Can HMRC really access my bank account?
5. I've received a letter — what now?
Don’t ignore it. Read it carefully, get your records together, and either respond to HMRC directly or take advice from an accountant. Acting promptly almost always leads to a better outcome.
A final word
HMRC has more data available to it than ever before, and it is using that data to identify people whose online income has not been declared. Keeping accurate records and filing returns on time is not something that can be pushed to the back of the queue anymore.
If income has gone undeclared, the question is not whether HMRC will pick it up. It is when. Speaking to a professional now is a far better position to be in than waiting for a letter and dealing with it under pressure.
Anthony Burrell is the Tax Director at Golding Accountancy, specialising in UK personal tax, compliance, and strategic tax planning. He works with business owners, landlords, and property investors across the UK, helping them navigate complex tax legislation while ensuring they remain compliant and tax-efficient. Outside the office, Anthony is a dedicated West Ham supporter and has been a season ticket holder for more than 40 years. He also recommends Dext to clients looking to simplify their bookkeeping and financial processes.
