Selling on eBay: Are you trading?

by Sarah Bradford of

HMRC has launched a crackdown on those who trade through an e-market place (such as eBay or Amazon Marketplace) and omit to declare and pay tax on their profits.

To encourage those with undeclared income to come forward, they are offering an e-Markets Disclosure Facility (e-MDF) under which preferential terms are available to those who come forward under the terms of the e-MDF by 14 June 2012.

Details of the terms of the e-MDF are available on HMRC's website. Those who choose not to take advantage of the disclosure facility may live to regret it. HMRC is contacting various sites requiring them to provide details on members' online trading.

What is an ‘e-market place’?

An e-market place is an online market or online shop that brings together buyers and sellers. They are often run by a separate company which allows the users to advertise goods and services on their site and may charge a fee for doing so.

Use of sites, such as eBay, may vary from occasional use to sell personal items (e.g. furniture) that are no longer required to the regular selling of goods and services.

A tax bill is unlikely to arise where a person sells personal possessions online, other than a rare case where a capital gain may result. However, where a person is trading, HMRC will want to know as any profit is taxable and, conversely, tax relief is given for any losses that are incurred.

Are you trading?

To ascertain whether you need to tell HMRC about your online selling, it is first necessary to determine whether you are trading. The same rules apply in an e-market situation and it is necessary to have recourse to the `badges of trade’ – a series of indicators the presence of which suggests trading.

To help people work out if they are trading online, HMRC has published the following multiple choice questions on its website.

Question 1

How and why did you get the things you are selling?

A: You bought them so you could sell them again and try and make a profit.

B: You’re selling personal possessions you don’t want anymore, or things that have been given to you.

Question 2

How often do you sell things?

A: You make regular sales.

B: You have only made one sale and don’t think that you will sell anymore.

Question 3

How do you sell?

A: By registering as a business seller or as an online shop with an internet auction site.

B: When you have something to sell you advertise it, but you don’t sell enough to make it worthwhile setting up as a business user or shop.

Question 4

Do you change or improve the things that you sell?

A: You mend or change the things that you buy (that might include splitting them into smaller quantities), so you can make more profit on them.

B: You sell things as they are because you want to sell them quickly.

Question 5

How quickly do you sell things?

A: You sell things that you’ve only just bought and you’re hoping for a profit.

B: You’ve had the things for quite a while.

Question 6

Are you running a business selling similar things?

A: The things you sell are related to your business.

B: The things you sell are not things you see in your trade or business.

Question 7

How did you pay for the things you’re selling?

A: You had to borrow money to pay for the things you are selling.

B: You were given them or paid for them out of your normal living expenses.

Question 8

If you make things you sell, do you charge more than they cost you to make?

A: You try and sell them at a price that covers your costs and brings in a profit.

B: You sell things that you make as a hobby and only want to cover costs.

Mostly A

You're probably trading and should declare your income and use the e-MDF to tell HMRC about any undeclared income by 14 June 2012.

Mostly B

You're probably not trading, but be aware of what constitutes trading if your circumstances change and tell HMRC as soon as you start trading.

Practical tip:

Don’t forget about NIC and register as self-employed with HMRC as soon as you start trading.

Published on: June 1, 2012

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