If you are making a profit then you may have to pay tax.
Selling goods online? If the taxman thinks you are a trader then you’ll need to declare your earnings
Are you a Trader?
Anybody using online shops or marketplaces to sell goods should be aware that HMRC may regard you as a “Trader” and will want to know about your earnings to make sure that you are paying the correct amount of tax.
Broadly speaking if you are selling personal possessions, items that you have inherited or been given, or things that you have made (at cost) then you can relax.
However if you make regular sales, sell a similar item on more than one occasion, have a shop or business selling similar things, purchase items and sell them on very quickly (before you get any “personal enjoyment” from the item), repair or update an item before sale, or engage in bartering or low value sales in order to create a collection, then you are likely to be a Trader in the eyes of HMRC.
For more information there is a helpful YouTube video from HMRC that explains what they think being a Trader means.
What should you do about it?
For many people it comes as a bit of a surprise that something that started off as a hobby or a way of getting rid of unwanted clothes, or books or records is now seen as a taxable source of income.
If you have been earning money this way for some time then it is important to be prepared to tell the taxman as soon as possible because you may receive fines for non-declaration in addition to paying any tax that you owe.
There are some positive points to remember. You can offset some of the costs incurred in trading (such as eBay fees, packaging and postage) against your sales revenue, and this will reduce the amount of income on which you have to pay tax.
If your total income from trading (plus any other employment) is less than your personal allowance of £8,105 in the 2012-13 tax year, then you won’t have to pay income tax.
Starting out as a Trader?
If you are getting ready to use eBay, Amazon or even your own online store to start trading then the simplest piece of advice that we can give you is to treat it like a business.
That means:
- Declaring what you are doing to HMRC within 3 months of starting
- Understanding your income tax and VAT obligations
- Keeping very clear records of income and expenditure
- Setting up separate business accounts on your chosen trading platforms
- Creating a stand-alone bank account
You can operate as a sole trader when you start out but if you are successful then it’s easy to move up to limited company status, which can provide operational and financial benefits.
How can we help you?
Lewis Smith & Co. provides accountancy services to a number of successful eBay Traders and online sellers. As a result we have developed an extensive understanding of the issues surrounding working in this environment. Not just maintaining accurate accounts but helping to create strong business processes and good business practices.
To find out more why not give us a call and arrange for a free, confidential meeting. Our phone number is 01384 235549 or you can email info@lewissmith.com.
Lewis Smith & Co. – Accountancy, taxation and business advice for your industry sector
