Do You Need To Pay Tax on EBay Earnings?

  • What constitutes a business?
  • The rules around tax and VAT
  • We hammer down the facts

Michael Godsmark,

May 15, 2018

If you’ve never caught a buzz flogging your old stuff on eBay, then have you ever really lived?!

Whether you’re sorting through the loft, selling knitted hats you make on the side, or you’re looking to make an eBay business your sole source of income, you need to be aware of tax rules to ensure you don’t land yourself in hot water with HMRC.

We’ll take you through the basics.


Deciding the point at which you become a business

It’s one thing when you’re just clearing out your wardrobe or downsizing a collection of your personal possessions, but if you start to upscale, or buy things specifically to sell on, HMRC are going to see you as a business. And all businesses are subject to pay tax on business income.

There’s no real rule of thumb, but HMRC have a few pointers of how to work out what constitutes business income and these include:

  • The time between buying an item and selling it – i.e. having granny’s tea set for years vs. selling on something in the same week that you bought at a steal elsewhere
  • Repeated transactions in a short period of time – are you listing loads of items on a weekly basis?
  • Whether the item was modified, repaired or changed in any way to yield a greater profit
  • The nature of a sale and whether it’s typical of a trading organisation – this could mean the difference between selling as an auction and listing as ‘Buy It Now’.

Think you won’t get caught? It’s no secret that eBay are in cahoots with HMRC – they have the legal authority to have a sneaky peek at your selling activity and if they suspect you’re hiding anything, you’ll get a dreaded brown envelope through your door asking for more information.


Tax breaks for micro-sellers

What happens if you’re just a teeny enterprise or a genuine hobbyist? In the past, all income needed to be declared, but recently HMRC introduced a tasty little tax break for small-time sellers in the form of a £1,000 allowance. This means that any income under £1,000 made by trading on eBay doesn’t need to be declared at all. They say it’s to help support the “rapid growth of the digital economy”, which could well be shorthand for “we’ve got too much admin to do”. Either way, we’ll take it.


For regular business sellers

For everyone else, the rules are the same as any other business – you’ll need to register with both eBay and HMRC as a business, and you’ll be liable to fill in a self-assessment for tax purposes every year. The threshold for tax-free earnings for the current tax year 2018/2019 is £11,850. This allowance also includes any earnings from other employment – if you’re earning £20k a year working in an office and £5k a year from your eBay side-hustle, then sorry, but it’s taxable.

Since August 2017, all sellers now have to pay 20% VAT on their eBay fees too. Larger businesses turning over more than £85k must register for VAT and therefore can claim these back, but smaller companies will have to swallow these fees. You can voluntarily register for VAT, but it’ll mean more stringent paperwork, you could actually end up paying out more money than you reclaim, and it’s not always recommended if your sales volumes are unpredictable – nobody wants an unexpected VAT bill!


Whatever the size of your eBay business, if you need some help getting your numbers straight, get in touch with us today.

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About The Author

Michael is an enthusiastic and cheerful individual who, when not hard at work, enjoys mountain biking, cooking curry and travelling to new places.


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