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Tax advice for eBay-style sellers

Individuals who buy and sell items over the internet may in future find it harder to claim they didn’t realise their trade was taxable, in light of new guidelines from HM Revenue & Customs.

Aimed squarely at people who sell items through websites such as eBay, the fresh advice has been issued to demystify the fog between non-taxable loft clearers and taxable e-traders.

Freelance UK has heard from tax advisors that the onus is always on the individual to prove they are not operating a trade, as opposed to the Revenue proving they have been trading.

According to the new guidelines, available on HMRC’s website, people are now liable for tax if they use the likes of Yahoo! and eBay to provide goods to customers and they pay in return.

The taxman says you are trading, and therefore liable for tax, if:

* you sell goods that you bought for resale
* you make items yourself and sell them, intending to make a profit
* you sell or buy goods for other people and receive money for this (for example on commission), or
* you provide a service and receive payment (in cash or in kind).

If the answer is ‘yes’ to any one of these, you may have to pay Income Tax and National Insurance contributions to the authority.

You may also need to register for VAT. But traders of second-hand goods only pay VAT on the margin they make.

In other words, they are required to pay VAT on the difference between the price they bought the goods for and the price they sold them for.

The Revenue says you are an e-trader, likely to be self-employed and therefore liable for tax if “you buy items with the intention of selling them on as quickly and as profitably as you can.”

The authority has also updated its guidance to recognise e-commerce affiliates.

An e-commerce affiliate is a website that advertises products or services, but refers potential customers to an e-commerce site, like Amazon, to purchase the product.

If the customer makes a purchase, the affiliate who referred them normally receives a small payment.

HMRC said: “Affiliates may be liable to pay tax on the payments they receive for referrals.”

People uncertain about their status are urged to contact HMRC for guidance: all Brits are reminded they must alert the authority within three months or they face a hefty penalty.

Similarly, people who fail to register for VAT or keep records to show what they are buying and selling, could be charged VAT on the full value of the goods they sell.

Asked about sites like eBay, one tax expert has told Freelance UK: “The Revenue can simply raise an estimated assessment that the taxpayer would have to disprove.”

To further help people decide their status HMRC has issued the general rule:

“To be self-employed means that you are in business for yourself and you are responsible for the success or failure of the business,” it said.

“To be employed means that you work for someone else and the risks of running the business are not down to you.”

Anyone tempted to break the law by ducking their tax commitments should realise sites such as eBay give the authority a unique insight into the activity of a trader.

“The problem for sellers on eBay is that Revenue officers can sit and check thousands of eBay users’ [feedback] far more quickly than trawling around playing fields across the country,” one chartered accountant has warned.

“Overall, the Revenue must be finding searching out eBay users a good use of their time,” he added.

In the past, HMRC has considered the nine-point “badges of trade” test, with two or more ‘yes’ answers pointing to a liability.

The test effectively separates the traders from the occasional sellers or ‘loft clearers,’ by considering a range of factors:

Was there a profit-selling motive? Was there a series of repeat transactions? Where were the goods obtained? How was the product sold? How long was the time between transactions?

If you don't think you are trading, or only sell occasional items, check whether you qualify as a non-trader.

Feb 7, 2007
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