Losses on eBay Goods - tax relief?

DullGreyGuy

regency_man said:

DullGreyGuy said:

It depends... most sole traders do cash accounting, and it's about to become the default, with cash accounting you cannot use self employed losses on PAYE. If you are using accrual/traditional accounting then you can but under traditional accounting you may not have made a loss seeing as you are still holding the stock.

I've no idea what kind of accounting I do.  On my tax return I normally just take what I've made from eBay (proceeds) and subtract from that my costs (of the items and the postage and eBay's fees) then put that as 'other income' on the tax return.

What is the formal process of writing off the stock?  Do I actually need to destroy it?  I don't think they are ever going to sell, but I might be able to give them to a charity.

In cash accounting you deduct the value of stock at the point of purchase from your P&L, you consider sales and expenses as happening at the date of payment. 

With accrual accounting your sale is made when the deal is done so you will have to potentially pay taxes on things you yourself haven't been paid for, eg if you give your clients 60 day payment terms and you have a late payer. Cost of stock is a cost of sale and comes off when the sale is made not when the stock is bought. 

So if you started your business on the 1st April. You bought £5,000 of stock and sold half of it by the 5th April for £10,000 on 30 days payment terms. You have no other costs/transactions before the year ends. The following year you sell the remaining goods at the same rate and decide its not worth the effort so pack it in.

Method	Year 1	Year 2	Total
Cash	-£5,000	£20,000	£15,000
Accrual	£7,500	£7,500	£15,000

Ultimately the numbers will come to the same conclusion but the different treatments cause more variability in cash accounting hence probably why you cannot use the losses. 

If you incorporate you dont get a choice, you have to use accrual accounting, cash can only be used by individuals.

Under cash accounting there doesn't have to be a process to write it off as you've claimed their full cost up front. It would be sensible to record what happened to them in case HRMC decides to audit. With accrual accounting there is an accounting treatment required as the writing it off is an expense. Similarly with accrual accounting you'll get people who end up never paying and so you have to write that down as bad debt when you give up chasing. 

[Deleted User]

regency_man said:

I always assumed 'self employed' meant you're running a business where you're paying yourself a wage?

Is it ultimately in my benefit to register as self-employed then?  I assume I can just carry my current loss on the cameras over to 24/25 and register as self employed for this year?

I repeat - you are too late to register as self-employed for 2023/24 unless you wish to accept a penalty for late notification. 

If you do wish to go this route you can declare your loss on the self-employed section of the return and carry the loss forward under the cash basis. Alternatively you can use the traditional accounting method and can also set the loss against other income (there are other options).  However Dull Grey Guy makes an important point regarding stock. 

As you ‘have no idea what accounting you do’ and, with respect to your comments at 1.46 pm,  you may be better seeking professional advice. 

The is no scope for relieving ‘other income’ losses. 

Jeremy535897

Trading on Ebay is not really the sort of income that belongs in the "miscellaneous income" category. For an explanation of what is, see
https://assets.publishing.service.gov.uk/media/670537c53b919067bb482e27/SA150_Notes_2024.pdf
notes on Box 17.
You should have registered as self employed when you began this trade. You can be both employed and self employed. As you have declared past income as miscellaneous income, you will have to treat your trade as starting on 6 April 2023, and use form CWF1. As noted above, you are late in doing this, and that may incur a penalty, although HMRC don't usually bother.
You then complete form SA103S when filing your SA100 tax return. As you wish to use your loss against other income, you will need to use the traditional, not cash, basis for 2023/24. Enter your sales figure in turnover, and enter the cost of all products sold, and any other expenses in connection with your trade, and the loss on the unsold cameras, being the price paid less their net realisable value, in the total allowable expenses box. If you can barely give them away, that suggests that they should be written down to a modest sum. The overall loss is then claimed in the box for setting losses sideways. There are other, more complex, ways of using an opening year loss, but the sums don't sound worth the bother, particularly as the date your trade started might really be some years back.

Bookworm105

regency_man said:

I always assumed 'self employed' meant you're running a business where you're paying yourself a wage?

Is it ultimately in my benefit to register as self-employed then?  I assume I can just carry my current loss on the cameras over to 24/25 and register as self employed for this year?

the self employed make profits, they do not pay themselves a wage
the self employed include "traders", ie business people that buy and sell things to make a profit.

you are operating the cash basis since your records relate to your cash movements in and out of your bank account. HMRC now regard that as the default record keeping method so unless you wish to show good competency in production of accounts in accordance with statutory accounting principles and ask HMRC to switch your method, then stick with the cash basis !

Cash basis: Overview - GOV.UK

under the cash basis you have paid for the cameras on a certain date, so have money going out creating a purchase in your accounts. You have not sold them, so QED you have a net expenditure in your accounts, aka "loss" 

You have therefore already obtained 100% of the tax relief for their cost, so no you cannot declare a stock "write off" as that would be double counting their purchase cost. It is concerning that you do not understand that principle when you have already claimed their cost in full given your statement: "I normally just take what I've made from eBay (proceeds) and subtract from that my costs"

it is not a question of "ultimate benefit", it is a matter of fact that you are trading, you are REQUIRED to register as self employed. You should have done so by 5 Oct, BUT as you are already within self assessment the situation is far from bleak, although i presume this is not your first tax return where you have incorrectly declared "other income". Here is a random google page on the subject of late registration: 
Don’t panic if you missed the 5 October Self Assessment registration deadline, all is not lost! | Low Incomes Tax Reform Group


if you do not wish to use an accountant to prepare your annual profit (loss) statement to support your tax return (you are required to have one) then you need to spend a bit of time teaching yourself the basics:
Accounts: cash basis | Low Incomes Tax Reform Group

regency_man

Thanks for all the advice.  I understand now I should register as self employed, perhaps naively I always treated this as 'investing' like buying and selling commodities for profit, an alternative way to invest my money.  I never considered myself a 'business' as such, we live and learn.

Do I need to go back and correct my tax statements for the past few years where I declared my trading profits as 'other income' on my standard tax return?  Is the tax rate the same on 'other income' as it is on trading profits?

You have therefore already obtained 100% of the tax relief for their cost, so no you cannot declare a stock "write off" as that would be double counting their purchase cost. It is concerning that you do not understand that principle when you have already claimed their cost in full given your statement: "I normally just take what I've made from eBay (proceeds) and subtract from that my costs"

I do understand this, however I could not reconcile it with how I was previously reporting this to HMRC through the 'other income' section as it would be a negative number, which AFAIK the online form doesn't let you enter.

regency_man

Jeremy535897 said:

You should have registered as self employed when you began this trade.

What is the technical definition of this 'trade' you refer to?  Is each thing I buy (bulk lot) and then sell (individually) a separate trade?  Or did my 'trade' start the first time I bought something and continues to this day?

Not really sure how to define this.  The first profit I made was sort of accidental, I bid on an auction and won but didn't realise the bid was to buy all the lots at that price, so I ended up with 9 items I didn't need, so I sold them on, and as it turns out, made a small profit.  This got me thinking I could do that again, and I bought some really random second hand (but high value) items and also made a small profit on those too.  Mostly it's high-value electronics from business liquidations in very low volumes, the year I made £5k was pure luck and just 3 items traded - I got very lucky on an auction where some extremely valuable audio amplifiers were rammed in the middle of an auction of ladies dresses, as such no-one was interested in them or knew what they were and I got ~£14,000 RRP worth of amplifiers for £400, sold them to a dealer for about £5k profit.

There are also years where I don't bother, if I don't see anything I can be bothered to flip.  Does my 'trade' continue through these years also and I should just report it as zero income, zero expense on the self-employed section?

[Deleted User]

regency_man said:

Thanks for all the advice.  I understand now I should register as self employed, perhaps naively I always treated this as 'investing' like buying and selling commodities for profit, an alternative way to invest my money.  I never considered myself a 'business' as such, we live and learn.

Do I need to go back and correct my tax statements for the past few years where I declared my trading profits as 'other income' on my standard tax return?  Is the tax rate the same on 'other income' as it is on trading profits?

You have therefore already obtained 100% of the tax relief for their cost, so no you cannot declare a stock "write off" as that would be double counting their purchase cost. It is concerning that you do not understand that principle when you have already claimed their cost in full given your statement: "I normally just take what I've made from eBay (proceeds) and subtract from that my costs"

I do understand this, however I could not reconcile it with how I was previously reporting this to HMRC through the 'other income' section as it would be a negative number, which AFAIK the online form doesn't let you enter.

I sincerely urge you to seek professional advice. The idea that you can ‘correct’ previous tax returns in that manner (notwithstanding the nigh on certainty that HMRC would open up an enquiry) is for the birds! 

The onus is on the taxpayer to ensure that the tax return submitted is correct and complete in all respects - are you certain you are in a position to do that?

Bookworm105

regency_man said:

Jeremy535897 said:

You should have registered as self employed when you began this trade.

What is the technical definition of this 'trade' you refer to?  Is each thing I buy (bulk lot) and then sell (individually) a separate trade?  Or did my 'trade' start the first time I bought something and continues to this day?

Not really sure how to define this. 

There are also years where I don't bother, if I don't see anything I can be bothered to flip.  Does my 'trade' continue through these years also and I should just report it as zero income, zero expense on the self-employed section?

In the context of a tax return you do not think in terms of specific "trade", you think in terms of the concept of "trading". : You are "in business" (trading) for the purpose of making money for yourself. 
That could comprise:
-  a self employed consultant who sells their time at a price and makes a "living" from doing so, aka they are trading as a self employed consultant
- "traditional trader" business that buys physical goods and sells them to someone else for more than they paid to buy them. Obviously every sale is, in pedantic terms,  a separate trade, but not in the sense we use for tax return purposes. The totality of all your trades is what matters, your trade is: buyer and seller of goods  

both types of business have the intention of not losing money by spending more than they get from their activity, ie they are in trade to make a profit

the definition of "trading" is thus that you undertake an activity with a view to making a profit 

the distinction in terms of where you report your profit on a tax return is based on the frequency of your activity:
- had you only ever sold the surplus 8 items you bought by accident then that was genuinely a one time only "other income"
- but you didn't, you deliberately set out to repeat the activity by seeking other goods to buy with a view to selling for a profit. As such you must declare it as trading income since it is the deliberate repetition which moves that income from "other" to being trading. The fact the money comes to you makes it self employed trading income. 

(yes there are situations where people repeatedly give stuff away at a loss / cost to themselves, but there are specific tax rules that cover that situation)

Once you are registered as self employed on tax return then you must continue to report your profit every year on your tax return, so yes, including those years where that is zero.
You carry on doing so until such time as you actively tick the box to say your SE has ended. Unless you tick that box HMRC may say your tax return is incomplete and has not been submitted on time leading to penalties.

Please educate yourself on your potential exposure to self employed national insurance, particularly the threshold above which it kicks in. Just because you pay NI on your job does not mean you won't also potentially pay NI on your SE income. Hence the very real risk of being done for tax evasion if you hide recurring trading activity under "other income" 
Self-employed National Insurance rates - GOV.UK

regency_man

Bookworm105 said:

regency_man said:

Jeremy535897 said:

You should have registered as self employed when you began this trade.

What is the technical definition of this 'trade' you refer to?  Is each thing I buy (bulk lot) and then sell (individually) a separate trade?  Or did my 'trade' start the first time I bought something and continues to this day?

Not really sure how to define this. 

There are also years where I don't bother, if I don't see anything I can be bothered to flip.  Does my 'trade' continue through these years also and I should just report it as zero income, zero expense on the self-employed section?

In the context of a tax return you do not think in terms of specific "trade", you think in terms of the concept of "trading". : You are "in business" (trading) for the purpose of making money for yourself. 
That could comprise:
-  a self employed consultant who sells their time at a price and makes a "living" from doing so, aka they are trading as a self employed consultant
- "traditional trader" business that buys physical goods and sells them to someone else for more than they paid to buy them. Obviously every sale is, in pedantic terms,  a separate trade, but not in the sense we use for tax return purposes. The totality of all your trades is what matters, your trade is: buyer and seller of goods  

both types of business have the intention of not losing money by spending more than they get from their activity, ie they are in business to make a profit

the definition of "trading" is thus that you undertake an activity with a view to making a profit 

the distinction in terms of where you report your profit on a tax return is based on the frequency of your activity:
- had you only ever sold the surplus 8 items you bought by accident then that was genuinely a one time only "other income"
- but you didn't, you deliberately set out to repeat the activity by seeking other goods to buy with a view to selling for a profit. As such you must declare it as trading income since it is the deliberate repetition which moves that income from "other" to being trading. The fact the money comes to you makes it self employed trading income. 

(yes there are situations where people repeatedly give stuff away at a loss / cost to themselves, but there are specific tax rules that cover that situation)

Once you are registered as self employed on tax return then you must continue to report your profit every year on your tax return, so yes, including those years where that is zero.
You carry on doing so until such time as you actively tick the box to say your SE has ended. Unless you tick that box HMRC may say your tax return is incomplete and has not been submitted on time leading to penalties.

Please educate yourself on your potential exposure to self employed national insurance, particularly the threshold above which it kicks in. Just because you pay NI on your job does not mean you won't also potentially pay NI on your SE income. Hence the very real risk of being done for tax evasion if you hide recurring trading activity under "other income" 
Self-employed National Insurance rates - GOV.UK

Jesus.

Where are you supposed to learn this stuff?  It was not covered in our Business Studies GCSE!

Should I get an accountant then?  Is there a specific type of accountant I need (given I already have to do a personal tax return)?

DullGreyGuy

regency_man said:

Bookworm105 said:

regency_man said:

Jeremy535897 said:

You should have registered as self employed when you began this trade.

What is the technical definition of this 'trade' you refer to?  Is each thing I buy (bulk lot) and then sell (individually) a separate trade?  Or did my 'trade' start the first time I bought something and continues to this day?

Not really sure how to define this. 

There are also years where I don't bother, if I don't see anything I can be bothered to flip.  Does my 'trade' continue through these years also and I should just report it as zero income, zero expense on the self-employed section?

In the context of a tax return you do not think in terms of specific "trade", you think in terms of the concept of "trading". : You are "in business" (trading) for the purpose of making money for yourself. 
That could comprise:
-  a self employed consultant who sells their time at a price and makes a "living" from doing so, aka they are trading as a self employed consultant
- "traditional trader" business that buys physical goods and sells them to someone else for more than they paid to buy them. Obviously every sale is, in pedantic terms,  a separate trade, but not in the sense we use for tax return purposes. The totality of all your trades is what matters, your trade is: buyer and seller of goods  

both types of business have the intention of not losing money by spending more than they get from their activity, ie they are in business to make a profit

the definition of "trading" is thus that you undertake an activity with a view to making a profit 

the distinction in terms of where you report your profit on a tax return is based on the frequency of your activity:
- had you only ever sold the surplus 8 items you bought by accident then that was genuinely a one time only "other income"
- but you didn't, you deliberately set out to repeat the activity by seeking other goods to buy with a view to selling for a profit. As such you must declare it as trading income since it is the deliberate repetition which moves that income from "other" to being trading. The fact the money comes to you makes it self employed trading income. 

(yes there are situations where people repeatedly give stuff away at a loss / cost to themselves, but there are specific tax rules that cover that situation)

Once you are registered as self employed on tax return then you must continue to report your profit every year on your tax return, so yes, including those years where that is zero.
You carry on doing so until such time as you actively tick the box to say your SE has ended. Unless you tick that box HMRC may say your tax return is incomplete and has not been submitted on time leading to penalties.

Please educate yourself on your potential exposure to self employed national insurance, particularly the threshold above which it kicks in. Just because you pay NI on your job does not mean you won't also potentially pay NI on your SE income. Hence the very real risk of being done for tax evasion if you hide recurring trading activity under "other income" 
Self-employed National Insurance rates - GOV.UK

Jesus.

Where are you supposed to learn this stuff?  It was not covered in our Business Studies GCSE!

Should I get an accountant then?  Is there a specific type of accountant I need (given I already have to do a personal tax return)?

All the HMRC manuals are online if you've really got a lot of time to burn but most can get away with the basic user guides and instructions on the government website. 

I wouldn't pay an accountant for a £5k business/sole trader, I do use an accountant but my business is incorporated and its profit has a couple more zeros so at that point their advice does pay for itself. 

As someone "in business" you dont have the protections that you do have as a consumer. You're expected to know what you dont know and make an adult decision on if you want to invest time to learn or pay for a professional. I could increase my knowledge on accountancy and maybe do away with my accountant but my hourly rate is more than theirs so doesn't make sense for me and unless I go as far as getting an ACCA it won't be helpful to my clients.