Inland Revenue cracking down on traders on eBay

Maz

Don't know where I read it/heard it or how true it is but I was told/heard that you can sell up to 60 item per year before it affects your tax position. Suppose the logical thing to do is get in black and white from that tax office!

windswept

that's what I thought until it was explained to me, look at it this way, you could keep buying stock and that way you would never show a profit as your expenses would always exceed your profits. you are taxed on what you have sold, not on your cash flow. that's where cost of sales comes into the equation. for example: opening stock: £5000, closing stock:£3000 = your cost of sales is £2000, then if you have sold that £2k's worth of stock for £4000, your gross profit/turnover is £4000-£2000 stock= £2000- expenses of say, £500 and your net profit on which you are taxed is £1500.
I hope this is clear now.

Maz

windswept wrote:

that's what I thought until it was explained to me, look at it this way, you could keep buying stock and that way you would never show a profit as your expenses would always exceed your profits. you are taxed on what you have sold, not on your cash flow. that's where cost of sales comes into the equation. for example: opening stock: £5000, closing stock:£3000 = your cost of sales is £2000, then if you have sold that £2k's worth of stock for £4000, your gross profit/turnover is £4000-£2000 stock= £2000- expenses of say, £500 and your net profit on which you are taxed is £1500.
I hope this is clear now.

Thanks for that but I was just approaching it as a flogger of unwanted household items, does this make a difference?

Hoddie_2

There seems to be an increase in this type of thread recently, perhaps it's time that this forum had a sticky with FAQ relating to tax on eBay/Amazon/car boot selling. Something along the lines of...

Q Do I have to declare any earnings?
A Yes. Unless you are only selling your own goods (the exception being if your own goods are of a high value, except a car, and you're making a profit in excess of £8,500 or the value is greater than £34,000).

Q What rate of tax will I pay?
A This depends on your total income from all sources within each tax year. If your total income is between £7,185 and £38,335, you would pay tax at a rate of 22%.

Q Is there anything else to consider?
A Yes. If your trading profit is above £4,465 (or £4,635 for 07/08), you will need to pay Class II National Insurance of £2.10/week. You may also have to pay Class IV National Insurance, but this will depend on how much National Insurance you pay on your employment income. You may also need to consider registering for VAT if your annual turnover (not profit) is above £61,000.

Q How do I notify HMRC?
A Call the newly self-employed helpline 0845 915 4515.

Q Is there a deadline for registration?
A Yes. You must register within 3 months of starting to trade (buying goods to sell), or you may be fined £100.

Q Can I claim expenses for working from home?
A Yes. You can claim a proportion of your household bills providing you can demonstrate that the proportion you claim is reasonable.

Etc... etc...

rare_stuff

coultog wrote:

Just a word of caution to some people... Don't get worried about making a couple of hundred quid off of eBay in a year. I'd be worriedif you're a PowerSeller and you're not declaring your income. HMRC will be looking at PS first IMHO!

You're possibly correct in this, but it must also be taken into account what turnover you have to generate a few hundred pounds of profit as this could be in excess of a couple of thousand pounds and the tax man will get round to paying attention to this and will also have a 'log' of your sales records generated from your ebay activity. There's little reporting on whether this robotic tax inspection will spotlight sellers on other venues such as amazon, but these venues will be under investigation as well.

In fact it may be too simple to say they will go for the power sellers first as the search engine they are using can provide an awesome amount of data and it may be simple for them to configure it to analyse any seller who has more than a certain number of items for sale or has sold over a certain amount in value. It may be quite a while before we see any prosecutions other than people just being fined for not declaring and been stung with a tax bill.

windswept

Maz wrote:

Thanks for that but I was just approaching it as a flogger of unwanted household items, does this make a difference?

sorry my answer wasn't for you, it was for a post before yours, that has mysteriously vanished, that said stock was an expense.
sorry for any confusion, selling your own goods attracts no tax liabilities.

WHA

Maz wrote:

Don't know where I read it/heard it or how true it is but I was told/heard that you can sell up to 60 item per year before it affects your tax position. Suppose the logical thing to do is get in black and white from that tax office!

No, I'm afraid that is little more than pub-talk. There is no such limit. You could buy and sell properties or cars or valuable paintings - probably sell less than 60 per year but still makes £10k's/£100k's of profit. There are NO de-minimis or lower limits when it comes to any form of trading. Buy a single item with the intention of selling it for a profit (however small value) and the law/rules say you are trading. If any HMRC inspectors or officers decide to ignore low levels of trading, then it is at their discretion, but you have to be precise in telling them what you are doing otherwise any advice they give will be worthless.

I know of one ebayer who was "found out" by the tax inspector despite having relatively few ebay transactions and not being a power seller. Unless he was reported by someone who knew him, HMRC must have tracked him because all he ever sold were new items, so selling quite a few new items and never selling any used must have flagged him up as a potential trader, on the grounds that people selling unwanted or used household items/toys/clothes etc would be describing at least some of them as "new". Presumably it is fairly simple to extract a list of sellers selling only or mostly new items if you have access to Ebay's database.

WHA

Hoddie wrote:

There seems to be an increase in this type of thread recently, perhaps it's time that this forum had a sticky with FAQ relating to tax on eBay/Amazon/car boot selling. Something along the lines of...

Q Do I have to declare any earnings?
A Yes. Unless you are only selling your own goods (the exception being if your own goods are of a high value, except a car, and you're making a profit in excess of £8,500 or the value is greater than £34,000).

Q What rate of tax will I pay?
A This depends on your total income from all sources within each tax year. If your total income is between £7,185 and £38,335, you would pay tax at a rate of 22%.

Q Is there anything else to consider?
A Yes. If your trading profit is above £4,465 (or £4,635 for 07/08), you will need to pay Class II National Insurance of £2.10/week. You may also have to pay Class IV National Insurance, but this will depend on how much National Insurance you pay on your employment income. You may also need to consider registering for VAT if your annual turnover (not profit) is above £61,000.

Q How do I notify HMRC?
A Call the newly self-employed helpline 0845 915 4515.

Q Is there a deadline for registration?
A Yes. You must register within 3 months of starting to trade (buying goods to sell), or you may be fined £100.

Q Can I claim expenses for working from home?
A Yes. You can claim a proportion of your household bills providing you can demonstrate that the proportion you claim is reasonable.

Etc... etc...

Yes, brilliant suggestion, just one slight correction though re the class 4 nic - perhaps mention the percentage as it is quite high and catches a lot of people out who think it is just the £2.10, whereas it could be a couple of thousand.

cafenervosa_2

windswept wrote:

sorry my answer wasn't for you, it was for a post before yours, that has mysteriously vanished, that said stock was an expense.
sorry for any confusion, selling your own goods attracts no tax liabilities.

Sorry that was me, I wrote the post but then saw that my question had been answered on the 1st page of this thread so deleted it. I still find it hard to believe that purchasing stock is not an outgoing or expense on the business.

cafenervosa_2

WHA wrote:

Yes, brilliant suggestion, just one slight correction though re the class 4 nic - perhaps mention the percentage as it is quite high and catches a lot of people out who think it is just the £2.10, whereas it could be a couple of thousand.

Whats the deal with the percentage, how much do you need to be making before you pay more than £2.10 per week?