HM Revenue and Customs have periodic crackdowns on different industries who they believe may not be paying enough tax. Recently they have focussed on eBay sellers, electricians and hair dressers. Their newest target is on ‘direct sellers’. HMRC define direct selling as “when you sell directly to customers usually door to door or in customers’ homes or the workplace”. They go onto say that:
Your selling may involve demonstrating a product in a customers’ home, sometimes at a party, or you might sell door to door, using catalogues. You might only sell to your friends and relatives. As a direct seller you will usually take commission on the sales you make. You may be involved in direct selling as a full time business, to top up your income from another job or to fit around your caring commitments.
HMRC’s concern is because people are often doing this kind of selling on top of existing jobs, or view it as an easy way to earn a bit of extra money, they may not realise they have tax liabilities. This can be further complicated by the way that they are employed. Although they may be described as an agent, representative, distributor or consultant for a particular company they are usually actually self employed. As such they need to be registered with HMRC in the same way as a normal sole trader business would. They should potentially be making regular National Insurance and Tax contributions and be filling out self assessment tax returns at the end of the year. Because of the terminology used and the complexity of contracts it can sometimes be unclear whether a direct seller should consider themselves as self employed or as employed by the company they are contracted to. HMRC have made a video to help people work this out.
If you are a direct seller who is self employed and you have not been making the correct tax contributions then HMRC are giving you until 28th February 2013 to come clean. If you do own up within this time period then they may wave any penalties and allow you to pay what you owe in instalments. They are only making this offer to people who have been working as direct sellers since before 6th April 2011 though. Anyone who started work after this point has to register and pay tax as normal.
If you think that the HMRC Direct Seller scheme may apply to you then you can download a Disclosure Form from their website. If you are a direct seller and want to get registered then we offer free Sole Trader Registration which includes basic accountancy advice so you can get your tax affairs in order.