When An eBay Seller Must Pay Tax

Posted on: 07 May 2008 by Gareth Hargreaves

Thinking of trading online? Keep your tax affairs in order with our expert advice.

"I retired recently and would like to make some money by trading on eBay. What tax rules do I need to consider?"

Chas Roy-Chowdhury, head of taxation, the Association of Chartered Certified Accountants (ACCA):

Those who regularly sell items on internet auction sites, such as eBay, may be unaware that they face the possibility of large tax bills and as a result they should maintain proper records of their trading activities.

Thousands of pounds worth of items are sold on internet sites each week, and HM Revenue & Customs is pro-active in pursuing individuals who qualify as "traders" and are making a profit from online auctions.

People selling goods on internet auction sites need to be aware that it will not only be potential customers who are looking at their goods and sales history, but it is possible that tax inspectors will be watching their trading activities with interest. They could be pursued for tax on their 'trading profits' at any time, even if what you are selling is in your view junk from the attic.

Anyone who sells items on sites regularly may be regarded as a trader, could be liable for tax on profits made, and therefore they need to take steps now to ensure they are prepared to pay tax on their trading activities.

The following steps are helpful ones to take to make sure you're not caught out:

Check if you count as a 'trader' by looking at the HMRC website for definitions or contact an ACCA firm of accountants who can advise you.

If you are trading declare your income now by contacting HMRC and set aside some of your profits to pay the tax.

You should also ensure you keep records of your expenses, for example postage, packing and stationery as these will be tax deductible.

Nick McBreen, Independent Financial Adviser, Worldwide Financial Planning Limited:

You appear to want to join the ever growing horde of people who use eBay to generate income by trading goods online. No problem there, but bear in mind that while eBay is a global online marketplace, you will be running a business - small or large - and as such will be required to make tax returns and pay Income Tax and National Insurance contributions accordingly.

Profits that are generated from online or "e-commerce" are no different from a more conventional business model in that you are obliged to make returns via the self-assessment system to the Inland Revenue.

Good luck in your new venture but before you start make sure you have a business plan in place!

Related Links

Self-Employment & Tax

Self-Employed? Cut Your Tax Bill

Web Links

ACCA: www.accaglobal.com

IFG Financial Services: www.ifg.co.uk

Find An IFA - Search for Independent Financial Advisers in your area.

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