HMRC do monitor ebay shops for traders who have failed to register their business with them. When you start a business, you need to register with HMRC within 3 months – see our reference page and useful numbers for the telephone number to do this.
There is a big difference in selling unwanted personal items and selling as a business activity. In deciding whether your selling activity is just a hobby or a business, take a look at the “badges of trade”.
The Badges of Trade
The following are used by HMRC as indicators of trading:
- 1. Profit seeking motive – if you are simply selling unwanted personal effects and having a clear out, that is not viewed as trading. If you are actively buying items with a view to selling them, this is trading.
- 2. Number of transactions – if it is a one off or occasional sale, then this would not be viewed as trading. Regular/frequent sales would indicate that there is a business activity.
- 3. Interval between purchase and sale – goods being traded are normally bought and sold within a short timescale. Items that are being sold as part of a clear out have usually been acquired and held over a longer period of time.
- 4. Original acquisition – goods acquired by inheritance or gift are less likely to be the subject of trade. Purchases from wholesalers or in bulk would suggest trading.
I think I am trading – what should I do?
1. You will need to look back at your trading activity and, using the badges of trade, decide when you think you started trading. HMRC will need to know this date and there are penalties if you have not informed them within 3 months of starting.
2. Keep good books and records of everything that you buy and sell – normally there are reports from ebay about your trading activity so this may help you on the sales side.
3. Make sure you keep your business and personal trading on ebay separate
4. You will need to add the profit from your trade onto your personal tax return each year
What costs can I claim for my ebay activity?
There are a number of costs that you can claim to offset against your income from ebay trading. Here are some examples:
- The cost of the item that you are selling
- Postage and packaging to the seller
- Monthly ebay fee for your shop if you have one
- Seller fees
- Marketing/advertising fees
- Accountants charges
You may also be able to claim:
- The market value or cost of a new PC
- Part of your internet connection
- Travel costs when you are purchasing/delivering items
- Use of home as office
What about VAT?
If your income from trading on ebay is £81,000 or more ( from 01/04/14), then you will need to register for VAT.
What about capital gains?
Capital gains can arise when you sell goods for more than the cost.
If you are selling personal effects (known as chattels), and they are individually worth less than £6,000, then you are exempt from capital gains tax.
The selling of private cars is also exempt from capital gains.
What about customs charges?
Remember that if you buy goods from outside the EU, you may incur customs duty, import VAT and possible excise duty.
Customs duty is not payable on goods from EU countries.
If you think you are trading, we can help and already support a number of online traders in ensuring all their paperwork and tax affairs are up to date so contact us for an initial review of your requirements.