Scots becoming a nation of home-earners but the taxman could lie in wait

Research from Gocompare.com has found that 29 per cent of Scots have tried to generate extra income through so-called “earn from home” schemes, typically earning £95 a month.

Trading on eBay and Gumtree is still by far the most popular way to make money, favoured by 16 per cent of Scots in the survey.

It was recently revealed that eBay’s top 30 “powersellers” had an average turnover of £4million a year, with cars, iPhones and TVs proving to be the most lucrative items.

The data from netvouchercodes.co.uk revealed that the site’s most profitable seller - universalgadgets01 – made nearly £1.5m in June alone.

John Stirzaker, creative director of netvouchercodes.co.uk said: “In the face of economic uncertainty it's great to see true entrepreneurialism is alive and well in the UK. With the right research and commitment, anybody can start small and build up a successful ecommerce business on eBay.”

This chimes in with separate research, which found that 21 per cent of start-ups launched in the last year began as a second job. AlldayPA, which published the data, said 450,000 Brits now manage a business while holding down a full-time job.

These so-called “intrapreneurs” are most likely to be men aged between 25 and 34 running digital businesses focused on website design, search engine marketing and PR.

Reuben Singh, chief executive of AlldayPA, said: “Such businesses may start small, but they can be major sources of employment and income for years to come.”

But only a quarter of Scots declare their extra income to the taxman, with 29 per cent saying their efforts wouldn’t be worthwhile if they had to pay tax on the earnings. Scottish accountants now warn that the taxman will quickly catch up with armchair moguls who try to push their earnings off the books.

A hi-tech new system developed by HMRC called “Connect” is now exposing discrepancies between income, assets and transactions in a matter of seconds and is being used to scrutinise historic transactions going back years, according to BDO.

Sites such as eBay, Etsy and Gumtree are now all required to disclose sellers’ details to HMRC, such as names, email addresses and details of items sold. This has led to 14,000 warning letters being sent out to vendors in the past three years.

Martin Bell, tax dispute resolution partner at BDO, said: “The issue at the heart of online trades is whether the individual is conducting a hobby or a business. Some of this could be explained simply by volume size. If an individual completes, say, ten trades a year then HMRC would be hard pressed to call them a trader.”

In the Gocompare survey, 37 per cent of Scots said their extra income was not worth declaring because it amounted to “extra pocket money”. But Mr Bell argued: “If someone has completed say 300 or more transactions in the last year and is regularly offering up a selection of goods which could not easily be perceived as personal, then there may be some explaining to do.”

Another popular way to earn extra cash is to rent out a spare room. In his recent Budget the Chancellor lifted the amount you can earn tax-free from £4,250 a year to £7,500. This is halved if you share the income with your partner or someone else. Should you exceed this amount, you must complete a tax return and opt in to the scheme to claim your tax-free allowance, or record your income on the property section of your tax return.

Mr Bell said HMRC was also targeting buy-to-let landlords who have declared property as a business but have registered it in their own name, without declaring income from tenants or gains from a sale.

“The Connect system allows for a cross referencing of ownership with purchase and sale price which results in a possible capital gains tax liability. HMRC is likely to soon be able to demand client lists and rents paid by estate agencies so the net will spread to larger landlords in the near future.”

The Airbnb phenomenon has also seen thousands of Scots rent out rooms for tourists, particularly around the busy festival season in Edinburgh and Hogmanay. But the Irish tax authorities recently forced the website to disclose details of its customers to chase up tax liabilities, with Mr Bell saying that similar action can be expected in the UK soon.

He said: “Here in the UK, Schedule 36 of the Taxes Act gives HMRC powers to demand that third parties, such as private businesses, hand over data where there is a suspicion that tax is being underpaid on a wide scale. If HMRC were to follow a similar path for Airbnb clients, as we saw with previous initiatives targeting Ebay sellers and holiday letting websites, and obtain information such rental income derived, people will not only be obliged to pay back taxes with interest but could also be stung with penalties.”

He added that online advertisements for renting out private rooms through the likes of Airbnb and Gumtree could be tantamount to informing HMRC that you have income to declare, as the taxman regularly prowls the internet for tell-tale signs.