EBAY TRADERS
ADVICE
FOR EBAY TRADERS Free
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accountants, ebay accountant,
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INTRODUCTION
Over the last few years
there has been various press comments about HM Revenue & Customs
'interest' in eBay traders. In addition, we are aware
that many traders have recently received 'enquiry' letters from the
'shadow economy' team run jointly by the tax and VAT departments of
HM Revenue & Customs.
| Extract from
Daily Telegraph 26/09/2004:
"Officials
at the Treasury and the Inland Revenue are increasingly
concerned that private individuals selling items for profit on
eBay are not paying Tax on their profits. These officials are
even more concerned by individuals who set up as traders on
the site but do not pay the appropriate amount of income tax
or any VAT. eBay estimates that 430,000 people earn
their living by using its global sites. There are 10,000
businesses geared to eBay in the UK alone.
"We are
acutely aware of the risks internet trading pose to the
Exchequer," a senior Government official told The Sunday
Telegraph. "Clearly e-commerce does raise new challenges
to compliance. "It is something we are actively
looking at. We are looking very much at individuals whether
they are trading in cars, motorbikes or Britney Spears'
bathwater to find out if people are making profits they are
not telling us about."
The Inland
Revenue has already demanded records and contact details of
eBay traders, which the auction house has had no choice but to
hand over. Also, eBay junkies who have appeared in the
press or on television boasting of the fortunes they have made
have frequently found themselves examined by Inland Revenue
investigators. "We do read the papers," a
Revenue official says ominously. eBay records are also
accessed as part of wider investigations into individuals and
businesses. But until now these investigations have been
piecemeal, not systematic.
However, the
Government is increasingly concerned that the sheer size of
eBay means the Revenue is losing millions of pounds in tax.
"Anybody buying or selling on eBay needs to be aware of
what their tax responsibilities are," Richard Ambrose (eBay's
UK category manager) maintains. "But we are not in a
position to enforce it . . . although we can and do co-operate
with outside bodies."
For the
British eBayers who have made secret tax-free profits, the
time when they can sleep peacefully at night is rapidly
running out.
To read the
full article Click
here:
Telegraph | Money | The inspector calls on eBay
|
Looking through the
Internet and Newsgroups we found very little guidance about
these issues. There was very little proper advice - and
some of it was inaccurate!
Major booksellers have
shelves with an amazing selection of books on eBay trading.
But, having reviewed all of these we found one half page (in just
one book) dealing with records keeping and tax. There was no
mention of VAT registration, at all!
Therefore we aim here to
provide an authorative selection of guidance to eBay traders.
If these details set your
mind at rest - great. (However,
please read the disclaimer at the foot of this page.)
If you are unsure about
anything you can contact us by phone or email and will reply
as soon as possible, with further advice.
You can of course consult
HM Revenue & Customs yourself for advice. National advice
telephone numbers and their website addresses are listed in
telephone directories.
Once you are 'trading' you
will need help with registering with the authorities, record
keeping, accounts preparation and preparation of the Inland
Revenue's Self Assessment Tax Return. Either find yourself a
local qualified Chartered Accountant (check that they deal with
eBayers) or contact us.
BASIS OF TAX
LIABILITY (AND HOW TO MINIMISE IT)
If you are just selling
personal possessions and items from your attic there
is no need to register as a business.
However, as soon as
you buy items to sell them for profit you are deemed to be trading.
If you buy and sell just a few items in the year your trading
'gross' profit may be covered by expenses and the authorities would
not be too interested. However, once you 'buy to sell' more
than a few items you will hopefully have made some level of profit
and you should start keeping records and paying tax on any profits
you make.
As soon as you "buy to
sell" (other than possibly an odd item or two) this
is a business and it is important that you notify the
authorities within three months of commencing trading, otherwise you
may be liable to a £100 penalty.
Self Employed people are
liable to pay Class 2 National Insurance Contributions of £2.30 per
week. Exemption (exception) from these 'dues' can be claimed
if your expected level of 'profits' is below £4,825 per annum.
The £100 penalty only applies if you are late starting to pay the
Class 2 Contributions. If you are able to claim the low
profits exception then you should not suffer
the £100 penalty.
If you are an eBay trader
and you also sell a few personal possessions you should keep records
identifying these items but you do not need to pay tax on any
profits made.
Your profits are determined
annually. Start, by totalling your dealing profits less
postage costs and eBay / Paypal costs. From this can be
deducted the obvious business related overheads such as telephone
costs, travelling costs, advertising, internet subscriptions,
stationery, etc.
Deductions can also be made
for a proportion of your motoring costs, depreciation of equipment
and a contribution towards household expenses. You may even be
able to claim for wages paid to people who help you with the
business.
There are, of course limits
and guidelines as to how much you can claim.
An experienced
accountant can usually provide very cost effective advice to help
you to legally minimise your declarable profits.
HOW MUCH TAX
SHOULD I EXPECT TO PAY?
If eBay trading is your
only taxable income then you will pay tax on annual profits over £4,745,
as follows:
|
2008/2009
Rates |
Profits |
Income
Tax |
Class
4 NI |
Total
% |
| Personal Allowance (under
65 years) |
£0 -
£5,435 |
Nil |
Nil |
0 |
| Basic Rate Band |
£5,436 -
£41,435 |
20% |
8% |
28% |
| Higher Rate Band |
above £41,436 |
40% |
1% |
41% |
Higher profits attract 40%
tax but just 1% National Insurance.
If eBay trading is extra to
your PAYE salary you still pay Class 2 and Class 4 National
Insurance (subject to an overall contribution ceiling). Your
tax liability is calculated by adding together your salary and your
profits.
An accountant can provide
you with an estimate of your tax liability as your trading year
progresses and will advise you about saving towards your liabilities
with advice about the normal tax payment dates.
SHOULD
I TRADE THROUGH A LIMITED COMPANY?
There are a number of
reasons why you might chose to trade through a limited
company. Fuller details are shown on our main website
pages under 'business information'. As a general guide
though we recommend considering 'going limited' if your profits
from Ebay trading exceed say £25, 000 per year (assuming you
have no other income). If you have other sources of income
such as a PAYE salary the benefits of 'going limited' can come
in at lower levels of profit.
Our 'fun' tax
calculator here
will give you an indication of the possible tax savings
available comparing trading through a limited company or a sole
trader. Please note, there are numerous factors involved
so you would need to speak to us before making any decision on
this matter.
(You can call or email
Dean Logan at any time for free advice on this or any other
subject.)
ADVICE ABOUT VAT
REGISTRATION FOR LARGER SELLERS (AND WHETHER YOU CAN AVOID IT)
You must
register for VAT when the value of your taxable supplies exceeds the
registration threshold. If the value of your taxable supplies
in the past 12 months (or less) has exceeded the current VAT
registration threshold of £67,000, or the value of your taxable
supplies in the next 30 days alone is expected to exceed this
figure.
Beware, the £67,000
registration test is assessed on a rolling twelve month basis.
Registration (within one
month) is compulsory once you have exceeded the threshold.
Late registration can result in a belated notification penalty
(which may just be a nominal amount if you act promptly).
Segregation (splitting) of
your business activities is usually ineffective once the VAT
officers are looking at your affairs.
Call us for detailed advice
about VAT registrations, business segregations, late registrations,
and explanations of the financial impact of being VAT registered.
BOOKKEEPING
RECORDS (ADVICE ON WHAT RECORDS YOU MUST KEEP)
eBay provides useful summaries in 'my eBay'
detailing items you've sold.
The 'accounts' pages show useful details of
eBay charges.
Paypal also provide details of their
charges.
You should regularly print out these
details and keep them for summarising at the end of the year.
In addition you should keep detailed
records of all expenditure on goods purchased and all business
expenses and overheads.
We can provide a proforma ' bookkeeping
layout' with a worked example for manual or spreadsheet completion.
Or why not try our free online
bookkeeping package from 
ACCOUNTANCY
SERVICE FOR EBAY TRADERS (LOTS OF ADVICE AND SUPPORT)
We offer sound professional
advice based on years of experience. Advice by email or by
direct telephone contact with a Chartered Accountant. Service
and support to eBay traders (and lots of other small businesses)
across the UK
No 'up front' charges.
Payment on successful completion of your accounts and tax returns.
Reasonable fees (£300 to
£450 plus Vat) for an average sole trader business.
We offer advice on set up,
registration of the business, bookkeeping advice, VAT registration,
preparation of accounts, estimates of tax liability, completion of
Self Assessment Tax Returns. Advice throughout the year.
Tax problems, arrears and
investigations expertly dealt with.
For impartial professional advice
(free initial consultation) contact Dean Logan on
0161 339 7502 or 01772 673377 or by
email on help@hanleyandco.co.uk.
We have clients
across the UK and are 'Accountant
you can talk to'.
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Important
Disclaimer
This website has been prepared for general interest. It is important
to take professional advice on specific issues. We believe
the information contained in this newsletter to be correct as
at April 2008. Whilst all possible care has been taken in
the preparation of this information, no responsibility for
loss occasioned by any person acting or refraining from acting
as a result of the material contained herein can be accepted
by the firm, the authors or publishers. © Hanley & Co. |
Drive thy business or it will
drive thee. Benjamin
Franklin (1706 - 1790)
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