HMRC has been urged to defuse a tax bombshell threatening online traders, by the Low Incomes Tax Reform Group (LITRG).

The LITRG, which is part of the Chartered Institute of Taxation (CIOT), says the tax authority must take action in order to make sellers aware of the fact that they may need to file a tax return and pay tax on their online trading income.

The group said that although there is no change to existing tax rules, HMRC will have more information on who is earning income via online platforms and will be more able to find out who owes tax on their earnings.

The LITRG argues that the new reporting rules could 'cause chaos' for taxpayers when the first reports are sent to HMRC and sellers in early 2025.

It has called on HMRC to strengthen its guidance for sellers using online platforms and standardise information so that users can easily understand it and report earnings by tax year.

Claire Thackaberry, Technical Officer at the LITRG, said:

'There are just over three months to go until HMRC starts getting information about the income and activities of people who use online platforms to make money. We are concerned that we will see the same chaos and confusion that arose when the rules first came into effect.

'Time is running out for HMRC to defuse this ticking time bomb. The information that HMRC will receive from platforms will be presented by calendar year, therefore covering more than one tax year. This could make it more difficult to work out when tax is due.'