HMRC ruling on eBay/ Etsy etc

jaywood

Thanks for all the info guys, the main worry i have is that the income i have is substantially more than £1700 annually, due to their collectible nature the original cost of the prints isn’t the equivalent of a t-shirt, it can often be £££s, so even if i am selling them at their original cost my earnings and the frequency i sell (approx. 50 per year) may flag that i am a trader in HMRC’s eyes.

I guess it can be compared to people who buy sneakers: sometimes the hobby is the fun of tracking down something rare, getting bored then selling it, but the big difference here is that most sneaker sales are flips (which i am assuming would be difficult to argue as not trading) whereas i am honestly just shifting stuff at a fair price (original cost + enough to cover my fees) to make room in order to continue my hobby.

Question is are HMRC going to stop me from partaking in this hobby unless i pay them?

RFW

jaywood said:

Question is are HMRC going to stop me from partaking in this hobby unless i pay them?

As I said earlier your best option is to get advice, either from HMRC or independent of that. It sounds fairly straightforward but if big sums are involved then you could get flagged up.

That said, there's always been the potential to flag you up, HMRC have had their own bots trawling Ebay for years. A few years ago they asked me to verify where I was paying tax, I was a business but, through a fault of theirs, HMRC didn't have the right details for me. It was sorted in a phone call. As I understood it they trawl Ebay and look for patterns then ask Ebay for the seller details. The difference now is they will have the details without having to ask for them.

It may be that if you get the right advice you could declare it correctly and save yourself money. It sounds like you can potentially lose as well as gain. I do know of a few people who use art dealing as a way of saving on tax. A small accountancy fee could potentially save you a lot per year. They would take into account your earnings elsewhere and advise how best to proceed. Filing tax doesn't always mean you'll end up paying any.

Bertie129

JamTomorrow said:

I suspect our sales will exceed the HMRC criteria on both volume and value and whilst primarily made up of reselling our old items it will also include a few flips of charity shop and car boot purchases.  Can losses on reselling of old items be offset against profits on flipped items?

As a higher rate taxpayer it probably makes sense now for us to either set up a new eBay account in my Wife's name  (she is doing most of the ebay sales anyway and has no earnings so any ebay income would be nil rate band) or change the name of my account to her name to preserve the 20 years of good feedback.

I'm in the same position, I make about £4000 per year from eBay, with about half from selling on personal items and half from trading items I've bought to sell on. The approach I'm taking is this:

1. Start separating personal items from traded items by using different eBay accounts from now on.

2. Go through my eBay sales history and pull out the traded items, add up gross receipts, fees and expenses. Declare only these values on my self assessment. 

Personal items should not attract income tax so I'm excluding those from my tax return. If HMRC query it (the difference between what I declare and the figures they get from eBay) I am hoping they will accept the difference between the one-off personal items vs the traded items, which I can explain if needed.

There are some grey areas, for example any packaging materials I buy can be used for either personal or traded items, but these could legitimately be declared as a trading expense. There's no easy way I can tell what proportion is used on each!

Comments on this approach welcome if anyone has experience of it!

se2020

Bertie129 said:

JamTomorrow said:

I suspect our sales will exceed the HMRC criteria on both volume and value and whilst primarily made up of reselling our old items it will also include a few flips of charity shop and car boot purchases.  Can losses on reselling of old items be offset against profits on flipped items?

As a higher rate taxpayer it probably makes sense now for us to either set up a new eBay account in my Wife's name  (she is doing most of the ebay sales anyway and has no earnings so any ebay income would be nil rate band) or change the name of my account to her name to preserve the 20 years of good feedback.

I'm in the same position, I make about £4000 per year from eBay, with about half from selling on personal items and half from trading items I've bought to sell on. The approach I'm taking is this:

1. Start separating personal items from traded items by using different eBay accounts from now on.

2. Go through my eBay sales history and pull out the traded items, add up gross receipts, fees and expenses. Declare only these values on my self assessment. 

Personal items should not attract income tax so I'm excluding those from my tax return. If HMRC query it (the difference between what I declare and the figures they get from eBay) I am hoping they will accept the difference between the one-off personal items vs the traded items, which I can explain if needed.

There are some grey areas, for example any packaging materials I buy can be used for either personal or traded items, but these could legitimately be declared as a trading expense. There's no easy way I can tell what proportion is used on each!

Comments on this approach welcome if anyone has experience of it!

Two accounts would make things much easier for you. And, if you ever happen to be investigated,  will make that more straightforward as well.

Regarding packing materials,  I would just keep a tally of the total spent over the year.
Maybe set up another account for purchasing/use a dedicated card/etc.
Take that total at the end of the year and divide it between trading and personal somehow l.
Hmrc will be looking for something "reasonable" so you would probably be fine with splitting it against the number of items sold in each account or the value sold.

Ie, spend £1000 on packing materials,
Personal sales = 200 items
Trading sales = 800 items 
It would be reasonable to claim £800 as trading expenses for packing materials. 

Same if personal sales totaled £2000 and trading sales £8000.

They won't be quibbling over a few quids worth of bubble-wrap but if they spot you have been claiming 100% expenses for items you are also using for personal reasons they may well start looking deeper than necessary..

TojoRalph

jaywood said:

Thanks for all the info guys, the main worry i have is that the income i have is substantially more than £1700 annually, due to their collectible nature the original cost of the prints isn’t the equivalent of a t-shirt, it can often be £££s, so even if i am selling them at their original cost my earnings and the frequency i sell (approx. 50 per year) may flag that i am a trader in HMRC’s eyes.

I guess it can be compared to people who buy sneakers: sometimes the hobby is the fun of tracking down something rare, getting bored then selling it, but the big difference here is that most sneaker sales are flips (which i am assuming would be difficult to argue as not trading) whereas i am honestly just shifting stuff at a fair price (original cost + enough to cover my fees) to make room in order to continue my hobby.

Question is are HMRC going to stop me from partaking in this hobby unless i pay them?

You have received good advice, but looking ahead, I think you need to ask yourself how your eBay account would look to HMRC? You have said  as a hobby you buy art prints and regularly sell them on at a rate of approx. one print a week. You also mention that you are not making a profit doing this other than to cover the postage and packing costs. From an HMRC perspective however, my personal opinion is that if selling prints is the lions share of your eBay account activity, then were HMRC to look at how the income is generated, they are pretty much guaranteed to view the income as trading. However, were that to happen, given that you make no profit buying and selling and can hopefully demonstrate this, there will be no tax to pay. 

RedImp_2

Bertie129 said:

JamTomorrow said:

I suspect our sales will exceed the HMRC criteria on both volume and value and whilst primarily made up of reselling our old items it will also include a few flips of charity shop and car boot purchases.  Can losses on reselling of old items be offset against profits on flipped items?

As a higher rate taxpayer it probably makes sense now for us to either set up a new eBay account in my Wife's name  (she is doing most of the ebay sales anyway and has no earnings so any ebay income would be nil rate band) or change the name of my account to her name to preserve the 20 years of good feedback.

I'm in the same position, I make about £4000 per year from eBay, with about half from selling on personal items and half from trading items I've bought to sell on. The approach I'm taking is this:

1. Start separating personal items from traded items by using different eBay accounts from now on.

2. Go through my eBay sales history and pull out the traded items, add up gross receipts, fees and expenses. Declare only these values on my self assessment. 

Personal items should not attract income tax so I'm excluding those from my tax return. If HMRC query it (the difference between what I declare and the figures they get from eBay) I am hoping they will accept the difference between the one-off personal items vs the traded items, which I can explain if needed.

There are some grey areas, for example any packaging materials I buy can be used for either personal or traded items, but these could legitimately be declared as a trading expense. There's no easy way I can tell what proportion is used on each!

Comments on this approach welcome if anyone has experience of it!

Technically should you not have had a business account already?

Bertie129

RedImp_2 said:

Technically should you not have had a business account already?

Thanks for your concern over this, but I don't think so, I started "trading" above the £1000 allowance in the 2022-23 tax year, the tax return for that year is due this month. For me it was all one thing, selling personal items made me realise there was a market for some things, which I went on to start buying/reselling in a small way. "Trading" is a subtle distinction compared to what many collectors/eBayers do as part of their hobby anyway. Would I have realised these trading rules apply to me without the recent coverage? Maybe not.

What's very impressive in all this is the concerned citizenry keen to ensure that those who may owe a couple of hundred in extra tax make sure they pay what is due. I am sure that at least the same level of fervour will be applied to corporate tax evaders as well as the hobbyists making a few extra quid!

soolin

Bertie129 said:

RedImp_2 said:

Technically should you not have had a business account already?

Thanks for your concern over this, but I don't think so, I started "trading" above the £1000 allowance in the 2022-23 tax year, the tax return for that year is due this month. For me it was all one thing, selling personal items made me realise there was a market for some things, which I went on to start buying/reselling in a small way. "Trading" is a subtle distinction compared to what many collectors/eBayers do as part of their hobby anyway. Would I have realised these trading rules apply to me without the recent coverage? Maybe not.

What's very impressive in all this is the concerned citizenry keen to ensure that those who may owe a couple of hundred in extra tax make sure they pay what is due. I am sure that at least the same level of fervour will be applied to corporate tax evaders as well as the hobbyists making a few extra quid!

I understand your comments but according to the eBay and cs you are trading and therefore need an eBay business account. There is no grey area, if you are selling in any commercial capacity, and that includes smaller hobby items like handmade trinkets, trading cards, whatever then eBay require you to upgrade to a business account. This is all completely separate to anything HMRC decide. 

It is quite possible that some of the many thousand of wrongly registered sellers on eBay do declare to HMRC so won’t face any issues there, however that doesn’t change the fact that they are not operating within eBay T and Cs, nor legally. Under UK law any commercial seller must declare as such, you need to have your geographic address clearly displayed and offer returns even for change of mind. 

the_lunatic_is_in_my_head

Bertie129 said:

JamTomorrow said:

I suspect our sales will exceed the HMRC criteria on both volume and value and whilst primarily made up of reselling our old items it will also include a few flips of charity shop and car boot purchases.  Can losses on reselling of old items be offset against profits on flipped items?

As a higher rate taxpayer it probably makes sense now for us to either set up a new eBay account in my Wife's name  (she is doing most of the ebay sales anyway and has no earnings so any ebay income would be nil rate band) or change the name of my account to her name to preserve the 20 years of good feedback.

I'm in the same position, I make about £4000 per year from eBay, with about half from selling on personal items and half from trading items I've bought to sell on. The approach I'm taking is this:

1. Start separating personal items from traded items by using different eBay accounts from now on.

2. Go through my eBay sales history and pull out the traded items, add up gross receipts, fees and expenses. Declare only these values on my self assessment. 

Personal items should not attract income tax so I'm excluding those from my tax return. If HMRC query it (the difference between what I declare and the figures they get from eBay) I am hoping they will accept the difference between the one-off personal items vs the traded items, which I can explain if needed.

There are some grey areas, for example any packaging materials I buy can be used for either personal or traded items, but these could legitimately be declared as a trading expense. There's no easy way I can tell what proportion is used on each!

Comments on this approach welcome if anyone has experience of it!

Personally I'd also open another current account with your bank and keep the funds separate as well. 

In terms of packaging, an example is given:

https://www.gov.uk/expenses-if-youre-self-employed

You can only claim allowable expenses for the business costs.

Example

Your mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business.

You can claim for £70 of business expenses.

Whether they would accept your method with packaging I don't know but in theory AFAIK you could sell yourself packaging, as long as it was done at market value. 

In terms of private/business account, it's not really got anything to do with the tax rules. There are requirements for business to consumer contracts regarding information provided and change of mind returns which is where this issue arises, I would imagine 95% of the business seller accounts on eBay don't meet these requirements regardless.... 

Bertie129

In terms of the type of eBay account I have, eBay forced me to upgrade to a business account years ago when all I was doing was selling personal items from the loft. I don't think the type of account you have with any online platform has any standing or relevance as regards your tax obligations or applicable trading laws.