Trader - tax issues

trumbo

I am thinking about selling lots of things on ebay (as a trader) and was wondering about tax implications.

I have a full-time job so if I went to the IR and asked about setting up as a trader in my spare time how much hassle would it be? is there loads of paper work?

And would my full-time tax be a seperate issue to that of earning im my spare time?

I know I could just ask the IR and find out but I'd appreciate some info before deciding whether to commit to anything...

1jim

we have just done this
you need to register as sole trader.
the inland revenue then sends you self assessment form every year and tax you on profits,
i dont know how much this involves yet as have wont get form untill april but i dont think its that hard if you keep records of costs and incomings etc as you go along, contact tax office and they will register you over the phone, they will also give you a form to exempt you from extra national insurance payments if you earn under 4k ish a year from sole trader work
all paye tax (main job) is taxed at source and unaffected by becoming trader

hope this helps

jim

Savvy_Sue

I'm glad someone's answered who's just done this because all I could suggest was a phone call to the local tax office: they are usually very helpful in the local office and you can make 'in principle' enquiries without committing yourself, or indeed identifying yourself.

The key to it all is METICULOUS record keeping: if you want to offset your expenses against your income then you must be able to justify it. So keep your receipts, and keep on top of your records through the year, don't rely on being able to work it all out from memory at the end of the tax year. There are a few areas you can do on a percentage basis but for that it's worth reading back old threads about use of your home for business etc.

You might think it worthwhile to open a separate account for all your trading income and expenses just to keep things tidy and separate. That way you won't be left wondering if the £10 you paid in in July was from your aunty for your birthday or for the vintage Lego you sold on Ebay.

It is definitely worthwhile setting aside a portion of your profit to go towards your future tax bill! Even if it's going to be 00s rather than 000s, the IR are unforgiving about late payments, and, indeed, about late submission of tax returns.

Bordera

This link might help. http://www.inlandrevenue.gov.uk/selfemployed/

Be sure to let the Inland Revenue know you are self employed within 3 months of starting up or they charge you a fine of £100 for late notification.

Also please remember that even if your profits are quite low at first you are probably going to have to pay tax on them.

The first tax bill won't be for a while BUT might be quite high because you pay the tax due for your first year plus another 50% as a sort of advance payment on the second year at the same time. After that it is in pretty much equal instalments twice a year if your profits are stable, but be prepared for that first one, it catches a lot of people out.

All of this is explaineed in more detail on the IR site.

WHA

As a practising accountant, I thought it worthwhile to mention just what "income" means. You'd be surprised just how many people seem to think that "income" means drawings or profits - it doesn't.

"Income" or sales means the selling price of your goods or services - i.e. the price your customer paid for it.

"Cost of sales" include the price you paid for the goods, the expenses you have incurred involved with the sale, i.e. postage, wrapping, etc.

"Expenses" include your overheads, i.e. bank charges. ebay fees, stationery, telephone costs, equipment, professional fees, travelling etc. BUT, any expenses you claim must be "wholly and exclusively" for business useage. If anything is used for both business and private, i.e. your home internet connection costs, you should only claim a reasonable proportion as business expenses.

"Profits" on which tax is paid, is income or sales, less of cost of sales, less expenses/overheads. There are special rules for the purchase of equipment which spreads tax relief over a number of years dependant upon the type of equipment.

Your accounting records must be capable of showing "income", "cost of sales" and "expenses" (broken down into expense headings).

Remember with ebay that it is not the balance of your selling/paypal account that constitutes income - the eventual balance comprises the sale price, ebay fees, paypal fees, and probably purchase of other goods - all these components have to be extracted and properly shown in your records - you may have "one" balance paid to you, but that could involve dozens or hundreds of individual transactions, many of which can be grouped, but which will be shown in different places on your accounts. Start properly and you won't get in a muddle and have to waste hours later going back in time to sort it all out!

It is quite possible that you could have a taxable profit, even though you have taken nothing from the business, for example, if profits have been used to buy more stock or equipment. It is also important to recognise that transactions have to be accounted for at the time they occur, not the time you pay/receive the money, so if you sell something before the tax year end, but receive payment after the tax year end, it is still part of your taxable income for the earlier tax year.

Finally, as an ebay trader, try to separate items that you have bought specifically to sell - i.e. trading, as opposed to those from surplus personal items. It is only the real "trading" items that need to be shown in your accounts. Anything personal and surplus to requirements can be ignored completely. You may like to consider having two completely different ebay identities and paypal accounts to differentiate the two types of transactions.

koru

WHA wrote:

Finally, as an ebay trader, try to separate items that you have bought specifically to sell - i.e. trading, as opposed to those from surplus personal items. It is only the real "trading" items that need to be shown in your accounts. Anything personal and surplus to requirements can be ignored completely. You may like to consider having two completely different ebay identities and paypal accounts to differentiate the two types of transactions.

Good point. Even if you flog off all the junk in your attic, you are probably not taxable on the proceeds, as you didn't buy them for the purpose of reselling them at a profit. Indeed, you are probably not making a profit, unless the item is a collectable or antique (in which case, tax may be more of an issue).