Letter From HMRC Re: Ebay Account

Flyonthewall

ovengloves wrote: »

This is not a wind-up. I've been looking at the replies before contacting HMRC.
My wife is not registered self employed. Perhaps naively, we thought Ebay earnings should be declared only if you exceed the personal earning allowance. I now understand this isn't the case. The last thing we would want to do is fall foul of HMRC.
I guess some of you are saying serves you right. What I'd say to that is we may have been daft but we've been honest. My wife works extremely hard in difficult personal circumstances to make a small earning (less than £5K). She is proud to claim nothing from the government and we're self-sufficient. She earns a small margin on sales (if anyone can earn 35-45% in an overcrowded market like Ebay, please give the magic formula), and sometimes sells at a loss to get rid of old stock. The problem is proving this.
We're just going to have to throw ourselves to the mercy of HMRC. Whatever they say has to be paid we'll pay. I just hope other people don't make the same mistake.

At least you know now so your wife can register as self employed and you can start declaring everything now.

It should be quite simple to prove. You should have receipts, emails, invoices for buying and selling. Paypal will show all your history.

Plenty of people earn 35-45% or even far more on ebay items. It's quite simple, buy for as little as possible and sell for as much as possible. Plus check for any options that allow you to reduce costs. Sending items in bulk, using a different company to send items, buying more in bulk, checking the prices for other suppliers etc.

Postage can be expensive depending on the item and ebay fees can kill profit on some items. However, if you're only getting 5K (or even less than that) for a 45K turnover there may well be something you can do to gain more profit as that is a massive difference.

soolin

Re profit percentage of turnover- look at savings as well as item costs. For instance, talk to Royal Mail about a business account, there are various types and depending on volume and type of post sent it can save money. Then register correctly on ebay as a business, with that sort of turnover and assuming dashboard is good it should be possible to achieve TRS and get a discount on the FVFs. Look to increase prices , I put mine up earlier this year and am still selling the same amount but making slightly more than I was, sometimes even if I don't sell as much I can get the same money for less work.

Take a good look at your stock, if anything isn't performing cut your losses and make room for better stock. I have some storage space so will sometimes just pull a line and leave it for a few months and try again, but anything bulky or anything that has 'jumped the shark' I just get rid of, either by selling bulk lots on ebay or offering it for car booters on Facebook. I even just donate some stuff to a charity shop sometimes to make room for more profitable stock.

As for your original problem, phone HMRC today, ask them for help and try and stall penalty tax demands being issued. Also get in touch with an accountant pronto- most will still be working today- explain your issues and ask for a one off quote to help with accountants from start up to now- then once this is sorted you can take over your own accounts and use use their format. At the moment though time is not on your side, it is likely that tax demands will be issued very shortly with 30 days to pay- and you need to get on top of this. It can't wait until after Christmas. If you do delay then you will be faced with a huge estimated tax bill, penalties and fines which will need to be paid- then spend months chasing refunds to get the tax part back again.

Lastly, don't forget National Insurance!

soolin

ovengloves wrote: »

The problem is proving this.
We're just going to have to throw ourselves to the mercy of HMRC. Whatever they say has to be paid we'll pay. I just hope other people don't make the same mistake.

No, you don't take pay whatever HMRC tell you they are not your accountants. HMRC will tax everything from start up with no relief for expenses , depending on how many tax years you have been operating your bill could be tens of thousands- and that's before penalties and fines and National Insurance. They are not going to do your accounts for you- 'just paying' what they demand is a non starter, you need to already be putting real effort into completing proper accounts that can be audited NOW to reduce the tax bill to something more accurate, if your wife was not using her personal allowances for any other income then your tax bill should be Nil, with just NI, fines and penalties to pay.

MacMickster

soolin wrote: »

Re profit percentage of turnover- look at savings as well as item costs. For instance, talk to Royal Mail about a business account, there are various types and depending on volume and type of post sent it can save money. Then register correctly on ebay as a business, with that sort of turnover and assuming dashboard is good it should be possible to achieve TRS and get a discount on the FVFs. Look to increase prices , I put mine up earlier this year and am still selling the same amount but making slightly more than I was, sometimes even if I don't sell as much I can get the same money for less work.

Take a good look at your stock, if anything isn't performing cut your losses and make room for better stock. I have some storage space so will sometimes just pull a line and leave it for a few months and try again, but anything bulky or anything that has 'jumped the shark' I just get rid of, either by selling bulk lots on ebay or offering it for car booters on Facebook. I even just donate some stuff to a charity shop sometimes to make room for more profitable stock.

Maybe I can paraphrase that.

Try to run your business in a businesslike way. Look at ways to reduce costs and maximise profits.

ovengloves wrote: »

What I'd say to that is we may have been daft but we've been honest. My wife works extremely hard in difficult personal circumstances to make a small earning (less than £5K). She is proud to claim nothing from the government and we're self-sufficient.

This should be your saving grace. Many ebayers will be claiming benefits, tax credits etc which should be reduced to reflect the income from their "hobby", so have rather more than tax, national insurance etc to worry about.

I take it that you are in employment yourself, and you aren't living on your wife's meagre profits from her ebay business. As she isn't using her full personal tax allowance, have you applied to transfer part of that allowance to set against your income saving you some tax?

You also need to consider that your wife won't currently be gaining any national insurance credits towards a future pension at the moment. Registering as self-employed and paying NI is likely to be beneficial in the long run.

If this letter from HMRC actually gets you both to sit down and review your personal finances properly then it could turn out to be a blessing in disguise. Good luck.

Flyonthewall

MacMickster wrote: »

Maybe I can paraphrase that.

Try to run your business in a businesslike way. Look at ways to reduce costs and maximise profits.

I know they said they want the "magic formula" and technically that sums it up, but considering they didn't realise they were a business and from what else they've said I'd say they probably need as much detailed advice on that as possible.

Knowing the "magic formula" is one thing, knowing what to do with it is another.

MacMickster

Flyonthewall wrote: »

I know they said they want the "magic formula" and technically that sums it up, but considering they didn't realise they were a business and from what else they've said I'd say they probably need as much detailed advice on that as possible.

Knowing the "magic formula" is one thing, knowing what to do with it is another.

The problem is that we don't know what the OP's wife sells, how many different lines, how she sources them, whether she is able to get credit terms, volume of items sold etc, etc.

It is a job for the OP's wife to analyse her own business and decide how she can maximise her gross profits, and then to look at how she can minimise overheads. If she can't do this herself then a decent accountant should be able to provide some advice, but if she is really only looking to run a very small scale business then the costs of that advice could outweigh the benefits.

Flyonthewall

MacMickster wrote: »

The problem is that we don't know what the OP's wife sells, how many different lines, how she sources them, whether she is able to get credit terms, volume of items sold etc, etc.

So? You can give plenty of advice without knowing that, as can be seen in soolin's posts.

My own post gave advice too, although not the detail on soolin's post, without knowing such details.

If we had more details perhaps extra and more specific advice could be given. However, you seem to want to reduce the advice...

It is a job for the OP's wife to analyse her own business and decide how she can maximise her gross profits, and then to look at how she can minimise overheads. If she can't do this herself then a decent accountant should be able to provide some advice, but if she is really only looking to run a very small scale business then the costs of that advice could outweigh the benefits.

It is, but the advice on here can greatly help her do that. Why get an accountant for that, especially - as you say - when the costs could outweigh the advice, when they can ask on here? There's information on here that an accountant possibly wouldn't give them because it's based on experience that an accountant is highly unlikely to have.

I'm really confused why you felt the need to sum up great advice by offering less advice and then argue that we don't have enough information when great advice has been given, that it's not worth paying for the advice when it has been given in detail anyway here for free and that the OP's wife should do it all herself when this forum is here to help people.

MacMickster

Flyonthewall wrote: »

SoI'm really confused why you felt the need to sum up great advice by offering less advice and then argue that we don't have enough information when great advice has been given, that it's not worth paying for the advice when it has been given in detail anyway here for free and that the OP's wife should do it all herself when this forum is here to help people.

The problem with the very specific advice which was given is that it does nothing to help the business owner to actually understand her own business.

Depending on the specific nature of the business then that advice may not be appropriate (for example the £45K business turnover may be from selling 6 second-hand caravans at an average of £7.5K each), Postage may not have any part in the business.

The best advice that can be given to any business owner is to fully understand their business model, and to constantly review suppliers, overheads etc looking for better value. Running a successful business is not simply about following steps a, b and c then job done.

getmore4less

There are loads of places to get free advice on running a business.

The important step is to realise thats what you are doing and go looking for the help.

The issue here is there is a potential time pressure depending on how HMRC react and how good the record are for the business.

For a sole trader one of the key measures is the Hourly rate, this business is clearing around £100pw 15hours or more and it is less than min wage. depending how close to those hours any extra admin could make this very marginal.

For now the important this is to engage with HMRC and ask for help/time setting up to report accounts for as far back as they need.

ovengloves

Thank you very much for the replies, there has been some very helpful information.
I am employed full-time and my wife makes voluntary NI contributions.
The Ebay stuff started out as a bit of fun and generated a small additional income.
We now have to decide whether to upscale and treat it like a proper business or just pack it all in. We'll be contacting HMRC after Christmas and will keep you posted.