Given the current cost of living crisis, it’s little wonder that many people are looking for ways to supplement their income. One popular way of doing that is by selling items online. There are plenty of websites that make selling online simple, ranging from eBay and Etsy through to Gumtree and Vinted. However, if you do sell online you need to be aware of the tax rules – and whether you’re likely to fall foul of the so-called ‘eBay Tax’. In this article we unpick the rules covering online selling and help you understand which ones apply to you.
Selling your old stuff
If you sell your old possessions online as a one-off activity, you are unlikely to have to pay tax. This is because you will rarely get more money than you paid for them. In other words, you don’t make a profit. As an example, if you cleared out your attic and sold your old possessions on eBay, you don’t have to tell the taxman. There’s one exception to this – when you sell an item worth more than £6,000 you may have to pay Capital Gains Tax. However, this doesn’t apply if you sell your car.
Occasional online trading
If you occasionally buy or make items to sell online, you need to be more aware of the so-called ‘eBay Tax’. In general, if you earn under £1,000 in a tax year before deducting trading expenses, you won’t have to pay tax on this income. However, you need to keep a close eye on your income in case it starts to reach this threshold.
Regular online trading and the ‘eBay Tax’
If you regularly trade online in order to make a profit, you must register for Self-Assessment if you earn over £1,000 per year. When you register for Self-Assessment, you have to declare your earnings and pay any income tax and National Insurance that’s due.
Currently you are allowed to earn up to £6,725 before you need to pay Class 2 National Insurance. You don’t pay income tax on earnings under £12,570. (For more details on personal allowances, see this post).
It’s important to remember that personal allowances are based on your entire income, not just your trading activity. So, for example, if you have a full-time job and earn £40,000 per year, you won’t have any tax-free allowance left. This means you’ll have to pay tax on all trading earnings if you make more than £1,000 per year.
Don’t forget VAT
If your online selling really takes off and you end up with a taxable turnover of £85,000 or more, then you will have to register for VAT. If you have a smaller turnover, you can still register for VAT, but speak to your accountant first to find out whether this is worth doing.
HMRC is watching you!
It can be tempting not to tell HMRC about trading income, especially if it’s just over the £1,000 threshold. However, it’s very unwise to do this. HMRC monitors online sites such as eBay for evidence of trading. Their teams are on the lookout for accounts that regularly post items for sale and are clearly trading. They have powers to obtain information about your trading activities and, if you have undeclared income you can get slapped with penalties on top of the tax you owe. In the near future, many online sites will be forced to share details of their users’ income with tax authorities.
I’m still not sure whether I need to pay the ‘eBay Tax’
If you’re still unsure whether you need to pay income tax and national insurance on online sales, HMRC has a useful online tool. You just need to answer a few questions and it will advise you on whether or not you need to pay tax.
If you do have to register for self-assessment, you can do so via this page. We can also help you file your annual tax-return and look for legitimate ways you can save tax. Drop us a line today to learn more.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.