The quick answer is – possibly. Many if not most of us have sold items online at some point – be it eBay, Amazon or similar sites. It may be part of a clear or simply to make money out of something you have purchased. Either way, should the selling become considerable, you are liable to pay tax on what you sell. Moolr take a look at a question many ask – do online sellers need to pay tax?
To begin with let’s be absolutely clear – you are not liable for taxation as soon as you start selling items online. However, HMRC believe that, while it is perfectly okay to sell online, individuals often breach boundaries. They are breached when they make what constitutes a ‘business profit’. In this case, they may owe tax on profit made through selling on sites like eBay or Amazon. The tax man expect you to disclose such information in your annual Self Assessment return.
Declaring extra income to HMRC can be confusing if you are new to the process and not experienced in filling in tax returns. It is a necessity though if you want to be serious about selling online.
In 2016, the Finance Act empowered HMRC with the authority to compile information from internet selling sites on ‘self-employed’ individuals who are not declaring income. There are factors to selling online that the government considers before defining something as a trade. They include the intention to make a profit from selling, rather than to make some loose change. Other factors include the repetition of similar transactions over a short period of time, the inability to prove sold items were a “pride of possession” before you listed them, fixed price auctions, selling items only recently bought and modification of items to increase their worth.
HMRC does not want to tax those just hoping to make a small amount for a rainy day. In 2017, the government agreed to a trading allowance that gave sellers the freedom to earn up to £1,000 in sales without paying anything in tax. They stated that the move was in order to simplify the tax system. And to help the UK “become leaders in the digital and sharing economy”.
It’s not just eBay that is affected, but anywhere you sell online. After that £1000 mark is reached, any further sales are liable to be taxed.
Quite simply, failure to declare sales is a form of tax evasion. But that does not mean you will be carted off to prison! In the more severe cases, online tax evasion could result in prison, but generally you will be liable to have to pay tax owed. Additional fines are always likely too. HMRC has the authority to access PayPal information and request extensive details from online auctioning sites. In 2016, approximately 870,000 people failed to submit a Self Assessment return. This resulted in huge fines for the sellers, with HMRC predicting an increase for years to come.
Completing a tax return sounds daunting, but it is not. Just ensure that you have kept full records of what you have bought and sold.