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How to Handle Tax when using eBay

September 5, 2012

Ask around and you’ll soon discover that the vast majority of people have dabbled on eBay and used this network to sell unwanted items.

However whilst for most of us we use eBay occasionally to source out items (at a cheaper price) or sell unwanted/ worn toys, clothes and gadgets, for a select few eBay has become a big part of how they make their income.

In fact there are some companies who use eBay as a place to sell and market their products.

How can this affect you tax wise?

Now this is the problem – not a lot of people or even businesses recognise that regular trading on eBay can lead to tax implications and as such, there are a growing number of people who are facing penalties/fines for using eBay as a source for money.

Luckily it is possible to find out what your tax liabilities are and ensure that you are not accused of tax avoidance by the HMRC.

Take the following information for example:

  • Since 2003 eBay has been legally obligated to charge VAT on seller fees to those who live, have a permanent address or are established in the EU (this starts at 15%)
  • If you are a business using eBay to sell products you may have to be VAT registered (the VAT threshold is £61,000). The best way to determine whether you need to register is to visit the HMRC website. They can provide you will a full list of guidelines, exceptions and the latest VAT rates.
  • Some of the items you sell on eBay may need VAT adding to them before you sell. Again, the easiest way to determine if VAT needs to be added is to visit the HMRC, review their list (including items which are exempt) and also make use of their Duty and VAT liability calculator which will enable you to work out potential tax liabilities for selling products internationally.

    Other things to note:

     – If you are VAT registered and have determined that an item needs VAT adding, you must clearly state the percentage amount that will be added to the listing and ensure that the buyer is aware of it before they agree on a price. If you fail to tell the buyer about VAT you cannot charge the buyer. Instead you will have to pay VAT on the item yourself.

  • Falsifying information to avoid paying VAT can result in civil fines and criminal prosecution.
  • Selling personal items or things that have been in your possession for a long time e.g. books, CDs, toys etc does not class a trading. Trading occurs when you sell products (often that you have made) with the purpose of making a profit. In this instance you will need to inform the HMRC about your trading and keep records of all your transactions. NOTE: you won’t need to register for VAT if your profits are below £61,000.
  • Purchasing items with the intention of selling them on for a profit is viewed as trading.
  • Once you are viewed as ‘trading’ this means you will also be liable for Income Tax. Now the amount you are taxed will depend on what you earn so to ensure you pay the correct amount it is important that you complete a Self Assessment.

It is important to note that even if you are not trading there will be circumstances where you are liable for Capital Gains Tax.

For instance, if you were to inherit a valuable painting worth more than £6,000 off a relative and sell it at auction, whilst it is not classed as trading, you will have to pay CGT.

Similarly, depending on the items you are selling, how often you trade and the profits you make – each can affect the amount and types of tax you have to pay. For this reason it is wise to consult with a chartered accountant as they can provide you with the knowledge, the resources and the advice you need to pay the right amount of tax at the correct time.

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