Taxman eyes eBay's 'black economy'

With an army of 10,000 UK entrepreneurs and a global turnover of £17.7bn, experts are warning it is just a matter of time before net auctioneer, eBay, falls under the shadow of the taxman.

The site is at the centre of a heated debate following the growing number of UK internet users who are earning some or all of their annual income by trading as 'untaxed' entrepreneurs.

Although there is no imposed tax on second-hand goods, experts are warning that those who peddle their products as a "trade," will have to do more than just declare their taxable income.

One London investment manager, Nick Train, believes the person-to-person trade of eBay has so far posed a problem for governments looking to regulate what he describes as "part of the black economy."

Speaking to the BBC's Money programme, he warned that government intervention rather than a fluctuating market would likely cause the biggest upset to the site's success.

"If the company continues to grow at current rates, sooner or later it is going to impinge upon the consciousness of tax collectors and excise agents around the world," he said.

Mr Train says that if eBay was a nation state, it would represent the 56th largest economy in the world; making it slightly less prosperous than Kuwait.

Last year, the company began encouraging its users and small businesses to declare their tax commitments with a pledge that the site would direct sellers to the Inland Revenue website to help with self-assessment.

While today no such link exists on the eBay homepage, Doug McCallum UK managing director, says that all marketplace traders "are paying their taxes."

He told the Money Programme: "Gordon Brown and the Treasury should be absolutely delighted that eBay has unleashed an astonishing army of entrepreneurs in this country."

However, the Revenue has gone on the record to say it does not recognise a 'grey area' for traders, between those who are buying and selling privately, and those who do it to supplement their income.

"There is usually no dispute that the activities carried on by a particular taxpayer do amount to a trade: the butcher, the baker and the candlestick maker all know, without getting into semantics, that they are carrying on a 'trade'," said the Revenue.

"On the other hand, for a person disposing of an unwanted personal possession, whether through the newspaper small ads or on the internet, his or her activities would not amount to trading."

Yet not everyone accepts that the Revenue will settle for this definition. Forrester researcher, Helen Omwando, said, "of course they're going to look at some way of taxing eBay, and eBay will carry that down to consumers."

One sign of this is perhaps already hitting traders, as the auctioneer last month announced on its UK board that fees for sellers are to increase.

Although there are some cost reductions – one of which is 6p – the increase for using the service to highlight an entrepreneur's product has increased from £1.50 to £2.50

Ebay also makes about 15p per trade from every listed sale on the site, combined with a small percentage of the final sale price.

In a move that finally identifies the traders from the loft-clearers, eBay yesterday announced a new service for small and medium-sized enterprises, allowing traders to input their full company and payment details.

The auctioneer claims it will then be cheaper and easier to sell goods in the market place with traders benefiting from a beefed-up online presence.

A spokesman for eBay said: "Several thousand small businesses are using ebay.co.uk to sell their surplus stock and release cash into their business.

"Small businesses can set up to sell online with next to no set-up costs. They don't have to spend money marketing their own site, because a third of the UK's internet population visits eBay every month, bringing them the buyers they need."

One eBay entrepreneur told Freelance UK: "If eBay itself is taxed, I don’t see how that would solve the problem of people dodging their tax commitments.

"As a small trader starting out, I am more worried about the rise in fees. If for example, I continue making a living off eBay, I would never be able to pay into a pension because I already have to pay income tax and national insurance contributions."

 

2nd March 2005

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