Many people have turned to selling items on sites such as Etsy, eBay, Depop and Vinted during the cost of living crisis and we’re often asked whether this income is taxable. As with many areas of tax, this can be a grey area and this wasn’t helped by recent government announcements that have been misinterpreted as a new ‘eBay Tax’.
In the eyes of HMRC, eBay tax isn’t a real thing. What is very real, however, is the tax implications of selling as a trader on online platforms such as eBay and Vinted.
Are you a trader?
The general rule is that if you are buying (or making) products to sell them at a profit through an online platform, you are trading and you will need to register for self-assessment, declare these profits to HMRC and pay income tax on them if not covered by personal allowances. You’re responsible for complying with all applicable taxes under UK law meaning you’ll need to keep detailed accounting records and receipts to calculate the profit you’ve made.
However, you don’t need to declare them if your income (i.e. sales) from these sources is below the £1,000 per annum trading allowance.
If you’re just selling a few unwanted items online for the same price or less than the original purchase price, there’s generally no need to worry about ‘eBay tax’ as it’s unlikely that you will make a profit and this isn’t classed as being a trader.
One final thing to note is that if you are selling second hand items of significant value you may have to pay Capital Gains Tax (CGT) if you sell something for £6,000 or more and make a profit.
What are the taxes for eBay sellers?
The tax that you owe on eBay profits depends solely on how much profit you make. The amount of income tax you pay on your trading profits is the same as if you were employed.
The current rates of income tax for England, Northern Ireland and Wales are:
0% tax rate on trading profits up to the standard personal allowance of £12,570
20% tax rate on trading profits from £12,570+ up to £50,270
40% tax rate on trading profits from £50,270+ up to £125,140
If you earn over £125,140, you’ll pay 45% additional rate tax on all your trading profits. You don’t get a personal allowance.
What can eBay sellers expense?
As a self-employed eBay seller, you can claim back the following as business expenses to reduce your taxes:
- PayPal fees
- Postage fees
- Courier costs
- Packaging supplies
Just remember to keep your receipts and statements for your self-assessment tax return.
What happens if I don’t declare my eBay earnings?
If you have not declared your earnings to HMRC you may have to pay both: the undeclared tax and a penalty worth up to double the tax you owe.
HMRC can go back 20 years if it suspects you are deliberately evading tax.
What about VAT?
You have to register for VAT if you:
- Earn over £90,000 in any 12 month period (in sales) from self-employment; or
- Want to claim back VAT on your expenses
If you don’t earn over £90,000 there’s no need to register for VAT.
I’ve received a letter from HMRC what should I do?
Please be aware that HMRC monitors the online selling platforms and has the power to obtain account details from the platforms if they suspect someone is trading and not registered with them. They will write to suspected unregistered traders and if you receive such a letter it can be a worrying situation (even if you’ve done nothing wrong).
Please contact help@360accountants.co.uk for further guidance.
