We recently received a newsletter from Robinson Rice Associates, one of our accountant clients which highlighted the potential problems with sellling on E-Bay. As this is something many people do, it's as well to know if you are in danger of having to pay tax.
Clearing out the attic and selling unwanted items on an online auction site such as e-bay can be a useful way of raising some extra cash – there are even television programmes dedicated to the subject! But what is the tax position on items you sell and other buying and selling you might undertake on e-bay?
As a general rule of thumb if you are just selling on unwanted personal items on an irregular basis you should have no problem arguing that these sales are tax free – however selling more regularly and in particular buying goods for resale (whether online or not) will move you into a trading activity which would be taxable.
The tax man will consider the following basic points when making his decision, are you trading or not?
1. Do you intend to make a profit?
2. Have you undertaken frequent and repeated transactions?
3. Do the goods involved only have value if sold on, or do they yield income or give enjoyment due to ownership?
4. Have you made a one-off transaction or does it form part of a regular pattern of buying and selling?
5. Were the goods sold repaired or improved prior to sale?
6. Were the goods sold in a way that indicates trading, or to raise cash in an emergency?
7. Was money borrowed to buy the goods? Were any profits to be used to repay the loan?
8. Goods being traded are usually bought then sold quickly.
9. Goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.
If you are concerned that your e-Bay activities are drifting into a business activity there are consequences that need to be addressed and quickly. Capital gains tax as well as income tax and National Insurance matters may need to be considered.
