9 Things eBay Sellers Need to Know about Tax

Man In Suit And Taxes

Last year an eBay seller was jailed for failing to pay the tax he owed. The issue is a serious one!

Whilst it’s true that selling items on eBay can be a great way to make money online, some sellers are unsure about what, if any, tax they should be paying.

We know that most sellers want to stay on the right side of the law. It’s just that finding out whether they should be paying tax can be incredibly difficult.

(Those who do wish to avoid coughing up, be warned: the taxman can access information from eBay – including the credit/debit card companies involved in transactions – and has state-of-the-art software that helps him trawl the internet.)

Not everyone who sells on eBay has to pay tax. If you do or don’t largely comes down to whether your activities are classed as “selling” or “trading”.

“Traders” have to pay, “sellers” don’t.

(Slightly unfortunate phrasing, since many eBay sellers will be classed as “traders” – still, what can you do?)

Unfortunately, only a very fine line separates these activities. And which side you fall very much depends on the nine points we’ve listed below.

1.Profit-Seeking Motive

If your intention is to make profit, this can indicate that you’re trading rather than selling. However, this is only necessary, not sufficient, to being classed as a “trader”.

Of course, many use eBay simply to sell unwanted but valuable products. And those selling such items would, in general, prefer to make at least some money from their transactions. But the low frequency at which they sell excludes them from being classed as “traders”.

If this were not the case, almost every eBay transaction would be subject to tax.

2.The Number of Transactions

If you sell a couple of items a year, there’s no chance of you being classified as a “trader”.

Only systematic and repeated transactions indicate “trade”.

But this doesn’t mean that you need to sell hundreds of products a week to be subject to tax. If you sell only a few expensive items, as we recommend in our blog, 3 Great Niches to Start Your Ecommerce Store, then you still may be classed as a “trader”.

It’s the systematic and repeated nature of traders’ transactions that gives them their “trader” status. So, if you regularly make very similar sales, that’s a good indication that you’re “trading”.

3.The Nature of The Asset

The type of product you sell also plays a part in determining whether you eligible to pay tax or not.

Items that appear to be being sold purely because they will give you a financial reward are likely to help class you as a “trader”.

For example, if you sell biros, the only advantage of you doing so is generating profit. On the other hand, if you sell a vintage motorcycle, then you’re the transaction may be done more out of an interest in vintage motorcycles than for any financial gain.

You may wish for it to go to a good home; you may simply be freeing up space in your garage for another bike.

4.Existence of Similar Trading Transactions or Interests

Is your eBay store the only place you sell goods? Possibly not. You may also run your own online store, in which case your eBay sales and the sales which go through your store may be quite similar.

You may, for example, sell the same products for similar prices. If so, this could mean that you’re a “trader”.

However, listing your product on another auction site or as a classified in your local paper doesn’t have the same consequences.

5.Changes to the Asset

You’re likely to be classed as a “trader” if you make substantial modifications, repairs, or improvements to the product you’re selling. If these changes to the asset mean that you’re able to sell it for a higher price, then that can indicate “trader” status (largely since it’s such an obvious sign of you seeking to make a substantial profit). Any changes that you make which aren’t likely to significantly change the price you’re able to charge won’t have this effect. For example, our vintage motorcycle seller may repair a bike he’s about to sell solely out of a passion for the asset.

6. The Way the Sale Was Carried Out

If the product was sold in a way typical of trading organisations, this may indicate “trader” status. For example, this may include promoting or marketing the product, altering the price in line with market changes, and listing numerous products simultaneously. If an asset is sold to, say, raise money in an emergency, then such a sale is not typical of a trading organisation.

7. The Source of Finance

Organisations that borrow money to purchase the products they sell are likely to be “traders”.

Borrowing money to purchase products indicates a well-thought-out attempt to generate profit, and this will help classify you as a “trader”. Moreover, if your only way to pay back the money borrowed is by selling the products you borrowed for in the first place, then you are almost certainly a “trader”.

8.Interval of Time Between Purchase and Sale

Assets that are the subject of trade are likely to be purchased and sold in a short space of time. And the intention to buy and sell an item quickly will support “trader” status. Alternatively, if a product is held for many months or years before it is resold, this indicates that the seller is just a “seller”.

9. Method of Acquisition

If, you inherit a product or have been given it as a gift, then the chances are that, by reselling it, you’re not acting as a “trader”.

We hope that our guide helps you decide whether or not your eBay activities are likely to be classed as “trader” or “seller”.

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  1. Pingback: Guide to VAT for UK Ecommerce Businesses - ParcelBright Blog

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