HMRC Income From Online Marketplace Letter

SeekingAdvice1211

Hi,

I received a letter from HMRC about income from online marketplace shortly followed by a large tax bill relating to the tax years ending 2022, 2023 and 2024.

I have been selling on eBay for many years selling only personal possessions. I am not trading and only have a private seller account. I looked into this when I heard about the new reporting laws coming in and don't believe this is taxable and doesn't need to be declared to HMRC.

I rang HMRC to inform them I was only selling personal possessions and was not trading, they said I had to put this in an email which I did. They replied asking for proof of the income received and proof of expenses. I sent them an email back with eBay statements attached for the 3 years they are asking about with a detailed description of the items sold (old tech items, clothing, blu-ray collection etc.) and that as for expenses these would include postage costs and obviously the original cost of the items when purchased new.

They have emailed back saying that without evidence of the original cost of items sold (receipts, invoices) and proof of expenses such as postage the tax would still be due.

Im concerned as I haven't kept any of the item receipts or postage receipts. I never felt I needed to keep these as I never imagined I'd be asked for them. The postage was almost always paid with cash at the post office before eBay had the option to buy postage labels from them. Many of the items were originally paid with cash. I may be able to prove some of it with eBay purchases that have been sold on again, or bank statements but this will only be a small amount of the sales.

Does anyone have any advice on the best way to proceed or been in a similar situation? Are there any organisations that could help me with this citizens advice or similar? Should I consider getting an accountant? 

Thank you in advance for any advice or help offered

horsewithnoname

Just go through the appeals process, and do ask for the reasoning behind their decision to treat you selling your private items as trading. If you take it to the Tribunal ultimately HMRC would need to convince the judges that there was compelling evidence that it was a trade. 

This would be things such as selling obviously new items (with tags and packaging) and in the case of clothes, selling items in various sizes, that sort of thing. 

If you are - and I’m not doubting you - genuinely selling just your own personal stuff, then it isn’t taxable and it is for HMRC to show that it is. 

If you can’t face doing it, then a good accountant can be worth their weight in gold, but that’s entirely up to you. 

Isthisforreal99

horsewithnoname said:

Just go through the appeals process, and do ask for the reasoning behind their decision to treat you selling your private items as trading. If you take it to the Tribunal ultimately HMRC would need to convince the judges that there was compelling evidence that it was a trade. 

This would be things such as selling obviously new items (with tags and packaging) and in the case of clothes, selling items in various sizes, that sort of thing. 

If you are - and I’m not doubting you - genuinely selling just your own personal stuff, then it isn’t taxable and it is for HMRC to show that it is. 

If you can’t face doing it, then a good accountant can be worth their weight in gold, but that’s entirely up to you. 

Going to somewhat disagree with you, the burden of proof generally is going to lie with both parties. HMRC can demonstrate that the OP has sold stuff through a platform, it is largely for the OP to show that the items sold were personal belongings. It would be interesting to know how much they have sold in the years concerned as to some extent that may sway a tribunal - a 'large tax bill' suggests a lot of selling? 

Vitor

I would suggest the OP formally appeals the assessments within the deadline, asks for a statutory review, and clearly states that the proceeds relate to disposal of personal effects, not trading income. They should also ask HMRC to explain precisely which badges of trade they believe apply. At that stage HMRC must justify their position, not just ask for receipts that realistically will not exist.

soolin

Vitor said:

I would suggest the OP formally appeals the assessments within the deadline, asks for a statutory review, and clearly states that the proceeds relate to disposal of personal effects, not trading income. They should also ask HMRC to explain precisely which badges of trade they believe apply. At that stage HMRC must justify their position, not just ask for receipts that realistically will not exist.

Using the term 'badges of trade' back to HMRC is always a good idea as there are proper criteria applied to that.

It's an unusual situation though, OP can you work out what triggered them to believe you were trading? It's rarely to do with just volume, there must be something else that caught their eye - if you can identify that you can target further responses to them.

I'm well out of date now, but in the 'old days' it tended to be mainly clothes sellers where they sold every size going, so it was difficult to argue that they were all personal .

mybestattempt

soolin said:

Vitor said:

I would suggest the OP formally appeals the assessments within the deadline, asks for a statutory review, and clearly states that the proceeds relate to disposal of personal effects, not trading income. They should also ask HMRC to explain precisely which badges of trade they believe apply. At that stage HMRC must justify their position, not just ask for receipts that realistically will not exist.

Using the term 'badges of trade' back to HMRC is always a good idea as there are proper criteria applied to that.

It's an unusual situation though, OP can you work out what triggered them to believe you were trading? It's rarely to do with just volume, there must be something else that caught their eye - if you can identify that you can target further responses to them.

I'm well out of date now, but in the 'old days' it tended to be mainly clothes sellers where they sold every size going, so it was difficult to argue that they were all personal .

The HMRC official guidance about badges of trade may be useful if it's a concept the OP is not aware of or familiar with:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205

se2020

Unfortunately,  since hmrc merged with customs & excise 10yrs ago (and gained some new powers) burden of proof (in a situation like this) is now on the taxpayer. 
Basically,  hmrc can provide a figure of tax due. All they need is a basic reason for this figure (which they will have from ebay/other online markets)
Taxpayer then has to prove that figure wrong.

The good news is, the standard of proof does not need to be absolute "beyond all reasonable doubt"
You just need to prove that your evidence is more likely to be correct than what they have.
If you can do this easily or not will depend on what you are selling, how you are selling it, amounts involved and so on..


Also, do some research and review the figures involved before opening an argument under "badge of trade"
There are 9 'badges' hmrc can use to justify opening an investigation. 
Plus another few they can bring up in court.

See how many of them you can clearly show do not apply to you.
Hmrc will have already ticked 4 or 5 of them just because you have been selling stuff on ebay.
So even if you can clearly show the other 3 or 4 don't apply to you the balance will be in their favour. 

Some are very simple to show.
Example,  Badge #1, Were you seeking to make a profit?
If you listed every item as a 99p start auction with no reserve you cam just say you had no influence over the amount of money you received from the sale and any profit was purely unintentionally gained.
If however you listed all/most items as buy-it-now and kept relisting unsold items it's going to be harder for you to show you were not trying to make money out of this.
Again,  that example will hugely depend on what you have been selling and how you have been selling it

soolin

se2020 said:

Unfortunately,  since hmrc merged with customs & excise 10yrs ago (and gained some new powers) burden of proof (in a situation like this) is now on the taxpayer. 
Basically,  hmrc can provide a figure of tax due. All they need is a basic reason for this figure (which they will have from ebay/other online markets)
Taxpayer then has to prove that figure wrong.

I was advising people 20 + years ago and it was exactly the same then, except pre internet it was mainly people being reported directly by friends or family. I saw dozens possibly hundreds of 'prove it letters' and the next step was usually to raise a tax bill based on what HMRC reckon they can get away with. This tax bill was always only used as a prompt- to make sure the person actually engaged with this system.

The good news is, the standard of proof does not need to be absolute "beyond all reasonable doubt"
You just need to prove that your evidence is more likely to be correct than what they have.
If you can do this easily or not will depend on what you are selling, how you are selling it, amounts involved and so on..

Beyond reasonable doubt is required in a court of law. HMRC go mainly on probability and what fits the badges of trade

Also, do some research and review the figures involved before opening an argument under "badge of trade"
There are 9 'badges' hmrc can use to justify opening an investigation. 
Plus another few they can bring up in court.

Be careful suggesting that some badges could apply , there are a couple of them that 'might' be arguable, but basically if a badge of trade can be applied then HMRC will consider the person trading.

See how many of them you can clearly show do not apply to you.
Hmrc will have already ticked 4 or 5 of them just because you have been selling stuff on ebay.
So even if you can clearly show the other 3 or 4 don't apply to you the balance will be in their favour. 

Selling items on ebay is not one of the badges of trade and HMRC should be very wary of using this one as satisfying the criteria 

Some are very simple to show.
Example,  Badge #1, Were you seeking to make a profit?
If you listed every item as a 99p start auction with no reserve you cam just say you had no influence over the amount of money you received from the sale and any profit was purely unintentionally gained.
If however you listed all/most items as buy-it-now and kept relisting unsold items it's going to be harder for you to show you were not trying to make money out of this.
Again,  that example will hugely depend on what you have been selling and how you have been selling it

a 99P start would not nullify this badge, there's such a thing as a loss leader, or something listed below a usual selling price to attract interest. HMRC even state this themselves '

An intention to make a profit supports trading, but by itself is not conclusive.'

badges of trade covered here
BIM20205 - Meaning of trade: badges of trade: summary - HMRC internal manual - GOV.UK

This badge catches people out sometimes especially if they are selling off a large repetitive collection. This is where photos showing the original collection, or even some auction catalogues or invoices showing an accumulation of your collection over a long period of time. The usual advice used to be that if you collected something that you took photos of that colelction in your coin boxes, or glass cabinet (whatever) but this is less useful now as photos can be manipulated.

The number of transactions

see BIM20230

Systematic and repeated transactions will support ‘trade’.

se2020

soolin said:

se2020 

I was advising people 20 + years ago and it was exactly the same then, except pre internet it was mainly people being reported directly by friends or family. I saw dozens possibly hundreds of 'prove it letters' and the next step was usually to raise a tax bill based on what HMRC reckon they can get away with. This tax bill was always only used as a prompt- to make sure the person actually engaged with this system.

This is not quite the same.
The OP has not been sent a 'consider your position' warning letter.
Hmrc have officially opened an investigation which the op has responded to.
They have provided a settlement figure which the op believes is incorrect. 


Beyond reasonable doubt is required in a court of law. HMRC go mainly on probability and what fits the badges of trade

If the op can not come to an agreement with hmrc then this will go to a tribunal which has different requirements to a court of law.
The burden of proof at the tribunal is "on the balance of probabilities" rather than "beyond all reasonable doubt"

Basically the OP just needs to show that it is more likely than not that he was not trading rather than unequivocally prove every item was a personal sale.


Be careful suggesting that some badges could apply , there are a couple of them that 'might' be arguable, but basically if a badge of trade can be applied then HMRC will consider the person trading.

This is correct. Again, the tribunal will consider if it is more likely than not that any of these trading badges apply then they will let hmrc apply them.

Selling items on ebay is not one of the badges of trade and HMRC should be very wary of using this one as satisfying the criteria 

Not if that is the only thing they have to go on. No.
But, the fact rhat you listed something on a sales platform (rather than donated ut to a charity shop) can be used as part of the evidence they have to show you were intending to make money.
Again, depends on what you were selling. A load of mens shirts and jeans from a wardrobe clearance that were all the same size and in various conditions,  not hard to say they were yours.
A load of new mens trainers in all different sizes, not so easy.


a 99P start would not nullify this badge, there's such a thing as a loss leader, or something listed below a usual selling price to attract interest. HMRC even state this themselves '

An intention to make a profit supports trading, but by itself is not conclusive.'

Agree, if you have 300 items on buy-it-now and 10 promoted similar listings as loss-leaders that would look like you were running a business. 
Starting every single item at 99p with no reserve over the 4 year period would be a quite convincing way of showing a tribunal you were using ebay to clear out your clutter and unwanted items rather than attempting to make money as your first intention. 

If the OP is brave enough to provide the ebay username we could probably tell them exactly what it looks like they have been doing..

soolin

se2020 said:

soolin said:

se2020 

I was advising people 20 + years ago and it was exactly the same then, except pre internet it was mainly people being reported directly by friends or family. I saw dozens possibly hundreds of 'prove it letters' and the next step was usually to raise a tax bill based on what HMRC reckon they can get away with. This tax bill was always only used as a prompt- to make sure the person actually engaged with this system.

This is not quite the same.
The OP has not been sent a 'consider your position' warning letter.
Hmrc have officially opened an investigation which the op has responded to.
They have provided a settlement figure which the op believes is incorrect. 


Beyond reasonable doubt is required in a court of law. HMRC go mainly on probability and what fits the badges of trade

If the op can not come to an agreement with hmrc then this will go to a tribunal which has different requirements to a court of law.
The burden of proof at the tribunal is "on the balance of probabilities" rather than "beyond all reasonable doubt"

Basically the OP just needs to show that it is more likely than not that he was not trading rather than unequivocally prove every item was a personal sale.


Be careful suggesting that some badges could apply , there are a couple of them that 'might' be arguable, but basically if a badge of trade can be applied then HMRC will consider the person trading.

This is correct. Again, the tribunal will consider if it is more likely than not that any of these trading badges apply then they will let hmrc apply them.

Selling items on ebay is not one of the badges of trade and HMRC should be very wary of using this one as satisfying the criteria 

Not if that is the only thing they have to go on. No.
But, the fact rhat you listed something on a sales platform (rather than donated ut to a charity shop) can be used as part of the evidence they have to show you were intending to make money.
Again, depends on what you were selling. A load of mens shirts and jeans from a wardrobe clearance that were all the same size and in various conditions,  not hard to say they were yours.
A load of new mens trainers in all different sizes, not so easy.


a 99P start would not nullify this badge, there's such a thing as a loss leader, or something listed below a usual selling price to attract interest. HMRC even state this themselves '

An intention to make a profit supports trading, but by itself is not conclusive.'

Agree, if you have 300 items on buy-it-now and 10 promoted similar listings as loss-leaders that would look like you were running a business. 
Starting every single item at 99p with no reserve over the 4 year period would be a quite convincing way of showing a tribunal you were using ebay to clear out your clutter and unwanted items rather than attempting to make money as your first intention. 

If the OP is brave enough to provide the ebay username we could probably tell them exactly what it looks like they have been doing..

I'm not trying to be argumentative but I always advise against letting your username be known on here. This is a popular site and not everyone reading it plays nicely - I've been the victim of bullying and harassment on ebay, many years ago, as someone tracked me down on ebay having had disagreements with me here on MSE.

Anyway casual users only see a very short snapshot of another users sales. 

se2020

I've messed up the formatting on my last post.
Click 'show previous quotes' for my full reply.

Agree,  might not be a good idea to publish a username but i think the least the OP need to do is look through the sales and try and spot what hmrc have seen to have any chance of defending this. 

Hmrc are going to have a huge amount of information coming in from the online trading platforms.
They have limited resources for investigation (as opposed to just sending out warning letters) so it would make sense that they would go for the ones that they had strong evidence for before opening an investigation into a particular user.

There are plenty of obvious traders registered with private accounts on eBay, (although I'm sure many of those are correctly registered for, and paying tax.)
There most be something that has come to their attention to be investigating the op and the op needs to work out what that is so he can defend it.