Becoming a seller on eBay

interlcore

I'm looking to sell some handmade items on eBay. I don't expect to earn too much from these items (I will be under £5000pa) and will be my only income. I can see that I will have to change my private account to a business one. At the moment I have 2 accounts. 1 is for selling my items and the other is to buy things to make my items and personal buying. Both these eBay accounts (and when I complete surveys) are linked to the same Paypal account. Is this okay or will it confused HMRC?
HMRC - what do I have to tell them/show them of my selling and buying? Will I not pay NI or tax? Should I tell them I'm going to be selling before I list anything or wait for my 1st sale? I've never done anything like this before so I am very in the dark.



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Premier_2

You should inform HMRC that you are going into business (presumably as a sole trader)

You will get all the advice you need from them as to how to pay tax etc. If you are still unsure, ask them. They really are quite helpful if you ask before they find out you haven't paid them what they think you should.

You will need to keep business accounts. I suggest you may wish to seek the advice of an accountant as you are so in the dark over this. Better to try and get everything in order before you start than try to unravel the situation later.

Gazing_On_Sunsets

Definitely phone them, they're open Saturdays too, and I've called them many times to blither and they're very patient.
There is a form you can fill in for NI Small Earning Exemption; when I did mine it was around £5000 or so. They'll tell you what's what.
Business Link do free courses, so that's worth a google.
When you fill in a tax return you'll just be putting in final figures so the records you keep of what goes where are more for yourself, though they can of course ask to see them.

interlcore

Another question How does the tax years work? I mean, I have bought materials to make my items in the last tax year but didn't sell anything in that tax year. With this new tax year, I am about to start selling. Do I include last tax year expenses in this tax year? Also, I have lost some of the receipts.

pinkclouds

interlcore wrote: »

Another question How does the tax years work? I mean, I have bought materials to make my items in the last tax year but didn't sell anything in that tax year. With this new tax year, I am about to start selling. Do I include last tax year expenses in this tax year? Also, I have lost some of the receipts.

I'm not an accountant and have deleted my original post here, for fear of causing too much confusion.

firstinflight

pinkclouds wrote: »

Depends a little bit on your accounting method. I'd say it was an expense occurred last year (when you made a paper "loss") and is now an asset (stock carried forward) this year - assuming your business uses the tax year as the accounting year.

No.

HMRC require you to account for your expenses on an "accruals basis". In English, that means you recognise the cost of your stock in the same period that you sell the goods. Until then it just sits on your books as "stock".

Otherwise people could just reduce their taxable profits by buying up loads of extra stock at the year end.

For example, assume you start a business in 2010/11 tax year with £100. You buy 50 widgets for £1 each, but don't sell any.

At the year end you have:

Cash £50
Stock £50

Revenue £nil
Expenses £nil
Profit/Loss on tax return £nil

In the 2011/12 tax year, you buy 50 more widgets for £1 each, and sell a total of 75 widgets for £2 each.

At the year end, you have

Cash £150
Stock £25

Revenue £150
Expenses £75 (purchase cost of the widgets you sold)
Profits on tax return: £75

pinkclouds

firstinflight wrote: »

No.

HMRC require you to account for your expenses on an "accruals basis". In English, that means you recognise the cost of your stock in the same period that you sell the goods. Until then it just sits on your books as "stock".

Okay. I seem to be confused. She just said: "materials to make my items". My line of thought was: maybe she's bought some scissors and cardboard last year and turned it into some bookmarks this year. Last year she had an expense (scissors) and this year she has an asset (bookmarks) that goes into this year's P&L as sales (bookmarks) less cost (cardboard) and profit less expenses (but she already bought the scissors last year). She can't declare the scissors twice..?

The self assessment form is a separate issue. I do mine online and I'm reasonably sure there is some space for bringing or carrying forward a loss from previous years, up to a limit of x years ago. But that's based on what I remember seeing from last year - and I don't actually use that bit of the form.

Anyway, I guess the upshot is: always consult a professional advisor. I didn't intend to confuse the OP... actually, I think I'll delete that post.

firstinflight

You've got it there. You only recognise the cost of the cardboard when you sell the bookmarks you made out of them. The scissors you could maybe argue either way.

However, any set up costs (i.e. the scissors) you incurred before you started to make sales can be classed as pre-trading expenditure on the tax return and treated as if they were incurred in the period you started to trade (i.e. this tax year).

The carried forward losses box is slightly different, in that it's for losses incurred after you've started trading.

twentyonemile

Sorry to dig this thread up again (just spotted it on the weekly email) but just to help out the OP. I've been an ebay seller for a couple of years and registered as a sole trader.

As far as keeping accounts go, Ebay (and Paypal in particular) allow you to generate reports (of a sort) that can show the money that has come in or gone out over any given period you require, making things much clearer for a beginner. (Or someone with no accounting skills like me!)

If you are able to make all your purchases of materials or expenses etc through Paypal also, you can effectively then set it to show your account from the start of the financial year to the end - basically giving you all the figures for your self assesment return.

Easy peasy! :j

Don't ONLY rely on this though!