Tax Planning, Accountancy and Business Development Advice
Based on 20 Years Experience as Practising Chartered Accountants
Online Traders
| YOU CAN NOW GET A FREE COPY OF OUR 24 PAGE GUIDE FOR ONLINE TRADERS |
 |
| 'A Guide For All Online Traders' |
| AVAILABLE VIA OUR SEPARATE DOWNLOAD SITE BY CLICKING HERE |
| This 24 Page EBook Guide Is Packed Full of Tax Saving Ideas specifically written for All Online Traders (Ebay, Ebid, Amazon Marketplace as well as general online website retail and wholesale traders). |
| All the information you need to keep on the right side of 'the authorities'. Written in an easily read style by a Practising Chartered Accountant who looks after the business and tax affairs of many Online Traders across the UK. |
|
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:
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.
Article From BBC News Website 12/2/2007:
Sellers on the auction website Ebay are being warned to check if they need to register as self-employed with HM Revenue and Customs (HMRC) and pay tax.
Research suggests that about 68,000 people make all or a substantial part of their living selling things on Ebay. However HMRC suspects that many can be defined as self-employed traders but are not paying their proper taxes. It is warning them that they should pay income tax, national insurance and possibly value added tax (VAT) as well.
Two hundred people registered in the first two days of the HMRC advertising campaign last week. The publicity drive by HMRC does not represent a change in the law. It is merely highlighting the existing position. "The overwhelming majority (of online sellers) are selling off unwanted goods. We are concerned with the minority conducting a business," said a spokesman. The advice is not just targeted at Ebay users but people using any online auction forum such as Yahoo! Auctions.
Ebay has become slanted more overtly to established commercial sellers in recent years, with large sections devoted to shops and other business sellers.
A spokesman for Ebay pointed out though that "when you sign our user agreement you agree to pay any taxes applicable in your country."
You Get The Picture?
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 authoratative selection of guidance to eBay and other Online 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. Click here for is a link to HMRC's website guidance.
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 £2.50 per week. Exemption (exception) from these 'dues' can be claimed if your expected level of 'profits' is below £5,315 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 £7,500, as follows:
|
2011/2012 Rates |
Profits |
Income Tax |
Class 4 NI |
Total % |
| Personal Allowance (under 65 years) | £0 - £7,500 | Nil | £25 | 0 |
| Basic Rate Band | £7,500 - £42,500 | 20% | 9% | 29% |
| Higher Rate Band | above £42,500 | 40% | 1% (approx) | 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 £20, 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 £73,000, or the value of your taxable supplies in the next 30 days alone is expected to exceed this figure.
Beware, the £73,000 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.
We now provide all our clients with access to our free Online Bookkeeping, which can be easily tailored to suit your business.
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 (£400 to £600 plus Vat) for an average sole trader business. For a Partnership add about £200.
For a limited company our fees could be £900 to £1200 plus VAT, so long as the bookkeeping is kept tidy - using Sage, our speadsheets or our Free Online Bookkeeping System.
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. Most Importantly we provide EXPERT PARTNER ADVICE BY TELEPHONE OR EMAIL through the whole year.
Tax problems, arrears and investigations expertly dealt with, naturally.
To enquire about any of our services click here, call now to speak to Dean Logan, or e-mail your initial enquiry to help@hanleyandco.co.uk.
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 28/2/11. 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.
