eBay is a premier online platform that enables people to buy and sell various products and services. You might have multiple reasons to start selling on eBay, such as decluttering your home, making extra cash with your handmade crafts or skills, or becoming a full-time seller. This beginner’s guide will teach you everything about the principles of HMRC eBay private sellers.
Whatever your reason for selling on eBay, you should know the tax rules that apply to your sales under UK law. You can Calculate the VAT to know how it affects eBay transactions, what expenses you can deduct, and what other fees you should factor in.
What is the difference Between An HMRC eBay Private Seller And Trader On eBay?
A private seller sells items on eBay occasionally, for personal reasons, or as a hobby. For example, you may sell unwanted items from your home or handmade goods as a side hustle.
A trader sells items on eBay regularly, for commercial reasons, or as a primary source of income. For example, you may buy items in bulk and resell them for profit or offer services or digital products.
The difference between an HMRC eBay Private Seller and a trader is significant because it affects how HMRC treats you. Generally, private sellers do not have to pay eBay sales tax unless they exceed the £1,000 tax-free trading allowance per year. On the other hand, traders have to pay taxes on their eBay sales, regardless of how much they earn.
eBay Private Seller: Register for Self-Assessment
If you are a trader on eBay or a private seller earning more than £1,000 per year from your eBay sales, you must register for Self Assessment with HMRC. If you are a freelancer or a small business owner, HMRC will collect income tax using the self-assessment system.
To register for Self Assessment, complete your details on the HMRC website. These include your name, address, date of birth, National Insurance number, and contact details. You must also choose a unique taxpayer reference (UTR) number and create an online account.
Once registered for Self Assessment, you must keep records of your eBay sales and expenses throughout the year. You must also file an annual tax return online by 31 January each year, reporting your income and expenses from your eBay activities. You must then pay any tax due by 31 January each year.
The profit margin of your eBay sales determines your tax obligation. Your profit is the sum of your income and less your authorised expenses. Costs directly related to your eBay business are known as allowable expenses.
Example
- Advertising costs
- eBay fees
- PayPal fees
- Equipment costs
- Insurance costs
- Stock or materials costs
- Postage and packaging costs
HMRC eBay Tax Guide and Rules
As a private seller, you are subject to paying taxes on eBay sales as in any other self-employed business venture. If you earn over the £1,000 tax-free business allowance, you must submit an annual Self Assessment tax return to HMRC.
However, even if you earn less than £1,000 per year from your eBay sales, you may still be considered a trader by HMRC if they deem your activity a trade.’
Trade and casual selling differ because the transaction is planned for the seller’s gain. HMRC uses ‘badges of trade’ to spot traders. You don’t need all badges of business, but having many of them may make the tax authorities think you are a ‘trader’ and ask you to register for Self Assessment. Some of these badges are:
- You are a ‘ trader ‘ if you aim to profit from your eBay sales.
- You are probably trading if you sell lots of the same or similar things on eBay.
- If you sell items on eBay frequently or regularly, this may imply that you are running a business.
- If you sell goods usually associated with trade, such as new or manufactured items, this may suggest that you are a ‘trader’.
- Modifying or improving the goods before selling them may indicate that you are a ‘trader’.
- You may be a ‘ trader ‘ if you buy goods specifically for resale or receive goods as part of your trade or profession.
- If you already have a similar profession or business outside eBay, this may suggest that your eBay sales are part of your trade.
- If you are still determining whether you are a private seller or a trader on eBay, you should contact HMRC or seek professional advice.
Declaring eBay sales to HMRC as a Private Seller
Declare your eBay sales to HMRC if:
- Are you a trader on eBay, or
- You are a private seller who earns more than £1,000 per year from your eBay sales, or
- You are a private seller who triggers HMRC’s ‘badges of trade.’
You can declare your eBay sales to HMRC by registering for Self Assessment and filing an annual tax return online. You must also pay the tax due on your eBay income by 31 January each year.
If you do not declare your eBay sales to HMRC when required, you may face penalties, interest charges, and even prosecution. HMRC has access to information from eBay and other online platforms and can use it to identify and investigate undeclared income.
How to report HMRC eBay Private Seller?
To report your eBay sales and file taxes as an HMRC eBay private seller, you need to follow these steps:
- Register for Self Assessment with HMRC online.
- Keep records of your eBay sales and expenses throughout the year.
- Determine your profit.
- File an annual tax return online by 31 January each year.
- Pay the tax due.
You can access more support on completing your Self-assessment tax return on the HMRC website. Do I have to charge VAT on my eBay sales? VAT is a tax on selling goods and services in the UK. You may have to sign up for VAT and include VAT in your sales if:
- You sell goods or services that are subject to VAT
- Your turnover (the total sales value) exceeds the VAT threshold in 12 months. The VAT threshold for 2023/24 is £85,000.
If you must register for VAT, you must charge VAT at the appropriate rate (usually 20%) on top of your selling price and pay it to HMRC every quarter. You must also file quarterly VAT returns online, reporting your VATable sales and purchases.
Do I have to pay tax on items I sell from my home?
If you sell items from your own home on eBay, such as unwanted clothes, books, or furniture, you do not have to pay tax on them if:
- You sell them for less than what you spent on them (i.e., you incur a loss), or
- Sell them for less than £6,000 each (this applies to personal possessions such as jewelry, art, or antiques).
However, if you sell items from your home for more than you paid (i.e., you make a gain), and they are worth more than £6,000 each, you may have to pay capital gains tax on them. Capital gains tax is a tax charged on the profit you make from selling assets that have increased in value.
How do I report income from other sources besides eBay?
If you have income from other sources besides eBay, such as employment, pensions, savings, dividends, or property, you must also report them on your Self Assessment tax return. You must also pay any tax due on them according to the applicable tax rates and thresholds.
How do I get help with my taxes as an eBay seller?
If you need assistance with your taxes as an eBay seller, you can:
- Use the online help and guidance from HMRC.
- Contact HMRC by phone, email, or web chat.
- Ask for professional help from a qualified accountant or tax adviser.
- Join an online group of eBay sellers and share tips and experiences.
How Much Can I Sell On eBay Tax-Free UK?
You can sell up to £1,000 annually on eBay without paying UK taxes. This is because the trading allowance allows you to earn up to £1,000 per year from self-employment or trading activities tax-free.
However, this does not apply if:
- Already self-employed, and your eBay sales are part of your total income.
- You are a trader on eBay, meaning you sell items regularly, for profit, or as a primary source of income.
- You trigger HMRC’s ‘badges of trade,’ which are indicators that you are running a business on eBay.
- You sell personal possessions worth more than £6,000 each, in which case you may have to pay capital gains tax on the profit.
- If any of these apply to you, you may have to register for Self Assessment and declare your eBay sales to HMRC. You must also pay any tax due on your eBay income by 31 January each year.
How To Avoid Paying Tax On eBay
Depending on your situation and country’s laws, there are different ways to avoid paying taxes on eBay sales. However, these general guidelines may not apply to your case because Tax laws vary by country and state and may change over time. Here are some possible scenarios:
- If you are a tax-exempt buyer, you can submit sales tax exemption certificates to eBay and purchase without paying sales tax.
- If you sell old stuff on eBay for less than you originally bought, you generally do not have to report income from those sales.
- Suppose you sell items occasionally, for personal reasons, and not for profit. In that case, you may qualify as an HMRC eBay Private Seller and benefit from the UK’s annual tax-free trading allowance of £1,000.
- If you are selling items regularly, for business reasons, and to make a profit, you may be considered a trader and must register for Self Assessment eBay sales tax. However, you can deduct certain expenses directly related to your eBay business, such as fees, postage costs, packaging materials, equipment, software, etc.
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