The tax position for internet traders can be complex, particularly given HMRC’s focus on spotting traders who don’t declare what can be significant income from their online trading activities.
In an effort to simplify the situation and recognise that many of us only dabble in using the likes of auction selling sites such as eBay on a rare and ad hoc basis, the Chancellor, George Osborne, used his recent budget to create a special tax-free allowances for people making money from the internet.
From next year, traders will be able to earn £1,000 tax free from selling via auction and selling websites, such as eBay and Gumtree.
If you are using eBay or Gumtree (or any other auction or selling site) to sell items you’ve bought in and have stacked up in a garage or in the spare bedroom, then that money can be taxable. That’s if you are working as a trader, you then fall into the category of ‘micro-entrepreneur’ selling services online.
The first £1,000 of income from your online sales will be tax free, although you won’t be able to take off your running expenses before calculating the total. Micro-entrepreneurs only have to declare income above the £1,000 threshold for tax purposes.
You’re unlikely to be considered a trader if you are simply selling unwanted Christmas or birthday presents or junk from the attic as it’s unlikely that the proceeds would be taxable anyway. These are one-offs and a means to recycle and reuse unwanted goods. What HMRC are interested in are repeat sales, when the intention is to make a profit.
HMRC defines trading as: ‘[wanting] to make a profit, you have bought goods to sell them on, you sell things often or regularly, you register as a business seller on an internet auction site, you sell from a market stall, you buy things wholesale or through trade suppliers, you change or improve things before selling them on, you sell things that you have just bought, you sell things that are related to another business that you run, you have borrowed money to pay for the things that you are selling and you need to repay that loan.
‘You are probably not regarded as trading if you only sell things to cover your costs, you sell a personal possession or something that you have been given or have inherited, you only make sales occasionally, you are not registered as an online shop or trader on an internet auction site, you make no changes or improvements to the items that you sell, you occasionally sell a personal possession that you have acquired or bought some time ago.’
If you are a trader and want advice on the tax implications for your business then get in touch today. The VAT implications for online trading are particularly complex and you need to avoid falling foul of those.
