What you need to know about online income and Irish tax
Article published in the Sunday Independent 2 August 2020
The recent lockdown may well have prompted you to try your hand at making money online. For many of us, the lockdown meant long stints at home, long spells out of work and an increase in online interaction. Should you be one of those who took advantage of lockdown to generate some income online – or if lockdown simply helped you discover ways to make money online which you now wish to pursue, it is very important that you understand where you stand on tax and online earnings as it can often be tricky and unchartered territory.
Nowadays cash can be generated online via sites like adverts.ie, Etsy or eBay. All of these sites allow you to sell items online - Etsy for example is an online marketplace which allows people to come together to make, buy and sell unique items.
Money can also be made online from blogging, podcasts or as an influencer with paid partnerships or ads – if you have enough online followers. Unfortunately, given the relative 'newness' of the online world, there is little general guidance on Irish taxes and online income. Tax can be very complex and each person's circumstances are different. Ideally if you have additional income, you should seek specific advice. You may even be able to do your own taxes online or you may have no tax obligation at all.
Even where the amount of money earned online is very small, there may still be a tax obligation – so it's very important that you understand any such obligation and do what needs to be done to avoid getting on the wrong side of the Revenue Commissioners.
You should assume that Revenue will have access to online transactions and indeed they are currently analysing the tax compliance of Airbnb hosts. Airbnb is required to share information with Revenue and the level of information shared is broad - for example it extends to foreign rental income earned by Irish residents.
CASUAL SALES
A casual sale can include a sale of clothes on Depop (an online app which allows you to buy and sell clothes) after a closet clearout, sale of old smartphones/tablets and household furniture after a refurbishment. Generally, small value casual sales of this nature do not give rise to Irish tax. In most cases, there will be a loss as the money made on the sale of that dress or iPad for example will nearly always be less than the original cost. For tax purposes, this loss is ignored.
So if you've earned a small bit of money from casual sales, you should not have to do anything here in relation to tax – and there's no need to disclose anything on a tax return in relation to these sales.
The tax position will be different however if the sale is not casual - but instead is part of your trade or business. If you repeatedly buy things to resell, make things with a view to selling them, or frequently sell items with a view to making a profit, then you are most probably trading for tax purposes. Classic examples here in the online context would include an eBay powerseller – an individual who achieves a high level of sales on eBay or a trader availing of the Shopify, the e-commerce platform which facilitates the setup of a unique online store.
These examples are generally equivalent to having a permanent stall in a town market. So people who fall into this category need to prepare accounts and are subject to tax on profits in the normal way.
A word of caution: if you are selling particularly valuable items (that is, items worth over €2,540 each - or as part of a set), you could be liable to Capital Gains Tax (CGT) on any gain. Items such as jewellery, artwork, antiques and so on may be affected by this.
BRAND COLLABS & ADS
The receipt of income from the provision of any service is liable to Irish income tax. Online services can include activities such as a brand collaboration on Instagram, the provision of ad space on a blog or YouTube channel or supply of content via Patreon, a platform which allows artists, musicians and other creative people to get paid.
The formal tax treatment will depend on whether you are carrying out a trade or not: in other words, are you in business or is this your hobby? The tax rate will be the same regardless of whether it is a business or hobby. However, the classification can give rise to other tax differences, such as allowable expenses and entitlement to the earned income tax credit (which can reduce your tax bill by up to €1,500).
GIFTS FROM BRANDS
The receipt of a genuine gift is generally not subject to income taxes. Such a gift will include the receipt of an item where you are under no obligation to provide anything in return.
However, if the brand requires you to post, say, an unboxing video (where you unpack a product and demonstrate how to use the item) or a review of a product online, then this would not typically be a gift. In strictness, the item would need to be valued and treated in the same way as if you had received cash for services provided. The market value in many cases can be easily identifiable as such products would typically be available for customers to purchase. This amount will be subject to income taxes in the normal way.
There is a separate gift tax in Ireland, called Capital Acquisitions Tax. This tax only applies where the value of the gift received from an individual, company or brand is more than €3,000 per annum. Such gifts from brands would be rare and you should obtain your own tax advice if you are in this territory.
The tax situation may be more complex if you have other paid collaborations or projects with the brand - or you are in business. The “gift” may be part of your business activities and could be taxable. Say your contract with a brand is due to expire and is up for re-negotiation and in the midst discussions, you receive a holiday from that brand. For tax purposes, this could be regarded as some form of taxable inducement payment. Ideally seek tax advice here.
Airbnb
Airbnb, the online accommodation service that allows people to make extra money by renting out their properties, has become a handy earner for many Irish people in recent years. Money earned as an Airbnb host is taxable income.
The tax rules around Airbnb had a reputation of being confusing but they have become less so in recent years. The “Rent a Room” tax relief – the scheme which typically allows you to earn up to €14,000 a year tax free by renting out a room in your home – was tightened up recently to ensure that short term Airbnb [type] lettings would not qualify for this tax break.
Nowadays, the main sensitivity is whether the host activity is regarded for tax purposes as an occasional letting or a trade. The key difference is that trading status provides more flexibility for deductions. Costs such as insurance, interest and maintenance would not be deductible for occasional letting of a room in your home. However, in all cases, a deduction should be available for Airbnb commissions, cleaning fees and food provided to guests. A reasonable apportionment of electricity, gas, heating and so on which is utilised by guests may also be allowable.
What tax do I pay on extra income?
You pay income tax, PRSI and the Universal Social Charge (USC) on all additional online income - and the rate of income tax paid depends on whether your total earnings require you to pay tax at the 40pc or 20pc rate. If you are married you may still have an entitlement to the 20pc rate for some income, even if your spouse is taxable at the higher rate.
How do I file a tax return for the income?
If you are already a PAYE taxpayer and your additional annual income is €5,000 or less (with turnover of €30,000 or less), then you can avail of a simplified system and file through myAccount, Revenue's online service. This facility is also used by many other workers with extra income such as teachers providing grinds, those with ad hoc consultancy fees and persons receiving cash via the “gig economy”. The extra income earned can be “coded” for PAYE purposes, which means it will be taken into account when calculating tax credits and standard rate cut off point, the amount of your income taxed at 20pc.
The annual tax return
For all other circumstances, the online “Form 11” should be used to file the annual tax return for the extra income. There is also a paper version of the form but the postal filing facility is only available if Revenue accept you do not have the capacity to use online facilities.
If you are already self-employed, you should be familiar with the Form 11 tax return. If your spouse already completes a tax return, you can include your income as part of their return.
However, if this is your first time completing the return, then you may need to formally register for income tax. If you are filing the return yourself, rather than engaging an agent such as an accountant to do so, you will need to register for the Revenue Online System (ros.ie). This can take around a week to process as you will need to be posted a security number. It is not something you can leave to the days before deadline. The filing deadline for tax returns is 31 October of each year; although this deadline is generally extended where you use online facilities. The deadline for online tax returns for the 2019 tax year is November 12, 2020. The calculation of additional taxable income can be quite confusing, and you may need specialist advice - certainly for the first time you submit a tax return.
Do I need to pay VAT?
Generally small value casual traders do not need to worry about VAT. However, a person is required to register for VAT if they supply or expect to supply services to the value of €37,500 in any continuous period of twelve months. This threshold increases to €75,000 for the supply of goods.
Paperwork
You will need to prepare accounts if your online activities amount to a business - and you may have a tax liability on income earned online. As an Irish resident, if you have no other income, you can usually have at least €8,000 of taxable profits per year before any tax liability kicks in. You will still need to notify Irish Revenue and file a tax return.
For those not in business, the tax around online income can be a lot simpler. As a rule of thumb, if you receive money for a service such as a brand collaboration or Air bnb letting, then you need to declare it and pay the tax. However, the casual sale of items will not generally trigger any tax obligation – so you will have to find another excuse for delaying that closet clearout!
Maura Ginty is owner of Gintax (gintax.ie)
Publication date 2 August 2020, Sunday Independent
