Selling Onlin

HMRC have for several years had the authority to collect information from credit card processing companies in order to check income being reported by traders – especially as regards VAT.

They now, in 2024, have the authority to collect information from online trading platforms such as Amazon, e-bay, Vinted, Airbnb etc.

So what does this mean?

Firstly the information is being used by HMRC to check if people are reporting taxable income on their personal tax returns.  They have done this for years using all sorts of methods such as

• Newspapers – what is advertised for sale? And by whom – is it being reported
• Shop windows – are these traders registered with HMRC
• Estate agents – is rental property income being reported
• Other publications – are advertisers registered with HMRC?
• Websites – are these people trading?
• Land registry – have properties that changed hands been reported

Now they have just expanded their net – there are no changes to the actual rules.

So what are those rules

1. If you are buying or making and then selling anything with the intention of making a profit then you are in business. And if those proceeds ( before deductions) are more than £1,000 in the tax year then HMRC wants to know and probably tax you.  Such trading profits are subject to income tax and maybe national insurance too.
2. If you are just having a clear out and selling your own unwanted second hand possessions, then as long as each item sold is worth less then £6,000 then HMRC is not interested, especially as they are unlikely to be making a profit that can be taxed.
3. Items sold for more than £6,000 are likely to be investments and hence if they make a profit then that can be subject to capital gains tax e.g. paintings, antique furniture. Each person has an annual allowance for capital gains, currently £6,000, and only profits in excess of this pay capital gains tax, so need to be reported. However if individual sale proceeds exceed £50,000 then any gain or loss needs to be reported to HMRC.
4. There can be a fine line between trading and selling your own possessions, e.g. a collector buying a second better model and selling the first, probably at a profit. The tax man has a list of what he considers to be “badges of trade” to help make this judgement and a guide of 30 items per year (10 if vehicles)
5. There is now also a £1,000 threshold for rental income above which you should declare profits on which you may pay income tax. However there is still rent a room relief  – a tax free allowance for income of up to £7,500 pa received from renting out rooms in your own home, while sharing facilities. This allowance is split between joint owners.

Record keeping

Most traders intentionally set up in business, so know they need to keep records for up to 7 years and report income annually to HMRC on their personal self assessment tax return.

If you are not in business then you still need to keep records of income, in case HMRC challenge you but legally for up to 3 years.

Especially as it can be quite easy to cross the line e.g.

• You buy several items to see which one fits best and then sell the rest rather than returning unwanted items. Do this too often and you are trading, especially if you start to make a profit by choosing a “better” sales platform.
• You make or upcycle things as a hobby and then start to sell them – initially to friends and family at cost.  But if you start to sell regularly and make a profit, even just to pay for your time and effort, then you are in business.

VAT

If you are already in business, then this extra income may need to be pooled for VAT purposes e.g.

• If your self employment income is near the £85,000 threshold, then the online trading side hustle income could take you over this so you need to become VAT registered
• You are already registered for VAT for your sole trader business, so you should also be charging and accounting for VAT on that holiday letting income.

Registering with HMRC

If you are in business then you have until 5^th October after the end of the tax year (ended 5^th April) to tell HMRC or you could incur a penalty.

If you have any queries or want to know more then do contact us