Tax Collectors Get a Cut of the Growing Secondhand Fashion Boom
Online marketplaces such as Vinted, Depop, Airbnb, and Etsy are now required to share information about customers who make a profit from their sites, according to the measures set out by the British tax authority, HM Revenue & Customs (HMRC). Customers must report any income they make from the marketplaces above £1,000 ($1,267) and could be liable for taxation.
This echoes the Internal Revenue Services (IRS) requiring income of more than $600 a year from third-party platforms to be reported by taxpayers in the U.S. in 2022. The IRS clarified that although the lower information reporting threshold allows easier tracking of income received, there is no change to the taxability of this income.
As of last year, the European Union implemented a system that automatically exchanges information about income earned through digital platform sales. The HMRC regulations are based on an Organisation for Economic Cooperation and Development (OECD) model, coming into effect as of Jan. 1, 2021, with reporting due from January 2025.
Many customers will not be affected: Vinted’s spokesperson claimed that “most of our sellers are unlikely to owe [U.K.] taxes on their Vinted sales”, while Depop—acquired by U.S. e-commerce business Etsy for $1.6 billion in 2021—echoed a similar sentiment.
The Value and Sustainability of Secondhand Fashion Booms
The boom in secondhand fashion has become increasingly apparent, with consultant McKinsey’s fashion lead Anita Balchandani asserting “consumer interest in value for money and a growing awareness of sustainability [will] continue to power growth in resale, including on customer-to-customer platforms.”
The customer-to-customer market in Europe has flourished, saturating €15 billion in 2022 with the potential to exceed €21 billion by 2026—even outstripping the overall fashion and beauty market, according to a report by Cross-Border Commerce Europe. Consequently, many brands are establishing their own resale channels.
The HMRC regulations put attention on tax evasion and will mainly target people engaged in buying and selling to make a profit. This puts digital platform sellers in a similar situation as traditional businesses, making their activities more visible to tax authorities.
The trend towards taxing online marketplaces trading secondhand clothes and goods is sure to spread throughout worldwide markets, as governments look to take a cut of the rapidly booming industry. With HMRC now joining the US and EU in enforcing the policy, areas such as the UK stand to benefit from increased taxation revenues. In the meantime, the industry looks to be continuing to ferment and companies such as Vinted and Depop look to keep expanding.