If you are someone who sells things online, chances are you know a thing or two about eBay. A mainstay since the late 90s, it allows third-party sellers to reach a global customer base.
What you may not be clued up on, however, is how tax works if you’re an eBay seller – and this is crucial to understand if you think you might want to start selling on the platform whether full-time or on the side. Selling things online as opposed to in-store doesn’t make you exempt from having to pay tax.
So let’s take a look.
Do I need to pay tax on eBay sales?
It really depends, but in all likelihood, yes.
Basically, if you earn over the trading allowance (currently £1,000) from eBay or a combination of places, you must register for Self Assessment and report your earnings to HMRC. One thing to bear in mind is that this threshold is a cumulative amount, meaning any other self-employed income you have (in addition to that from eBay) counts towards it for the year.
It’s also worth noting that eBay are legally required to report some sales data to HMRC, so don’t try to get out of paying tax by not declaring your income. There’s no escape!
The amount of tax you’ll pay is ultimately dependent on what business structure you choose, with most people registering as either a sole trader or limited company.
Does my business structure affect how I pay eBay tax?
The structure you choose has a big impact on how and when you need to report and pay the tax you owe on any eBay profits. If you plan on treating your eBay business as a side hustle, then you might register as a sole trader. On the other hand, if you plan on going all-in, you might consider registering your business as a limited company. It really does depend on you and your circumstances, but here’s a quick breakdown of each.
Selling on eBay as a sole trader
If you’re a sole trader, you are your business, so there’s no legal separation between you and it.
This means you’re personally liable for whatever happens legally and financially, which in turn means your personal assets are at risk – or would be should anything go wrong.
You’ll file Self Assessment tax returns (MTD Income Tax depending on how much you make), and pay income tax and National Insurance on your profits. The rate of tax you pay depends on the total amount of taxable income you earn in a year.
You’ll need to keep accurate, detailed records of your business’s financial activity regardless of which structure you choose, but there’s generally less admin required when you operate as a sole trader.
Learn more about becoming a sole trader
Selling on eBay as a limited company
The main difference is that you’re seen as a separate legal entity to your business, and this means you’ll file Company Tax Returns rather than Self Assessments, so you’ll pay Corporation Tax on your company’s profits.
When you register your business with Companies House, they automatically enrol you for Corporation Tax with HMRC – but there’s still a lot of paperwork to complete, with you needing to appoint such roles as directors and shareholders, as well as set out how the company will operate.
The process of incorporating a limited company is quite a bit more involved than that of registering as a sole trader, and there’s a fee too.
On top of submitting Company Tax Returns, you’ll also need to report your personal income from the company (e.g. dividends), which you can do via a separate Self Assessment.
Learn more about operating a limited company
Is it more efficient to be a sole trader or limited company as an e-Bay seller?
This really depends on your total profit, who else is involved in your business, and any other income you might earn! It might be helpful to chat to an accountant about it but even if you do decide to register as a sole trader for now, you can always incorporate your company at a later date.
That said, some people just prefer to operate a limited company, so their business is a separate legal entity from themselves as a way to protect their personal assets.
Do I need to be VAT registered to sell on e-Bay?
Again, it depends. You’ll definitely need to be registered for VAT and need to submit VAT returns if:
- Your sales exceed the VAT taxable turnover threshold (currently £90,000) over a 12-month period
- You’re a seller outside the UK and store stock within the UK
- You’re a UK seller who ships things to the EU
- You’re storing stock in a specific country
You can also voluntarily register for VAT, but it’s often useful to speak to an accountant about what this would mean for your business.
It’s also worth noting that eBay will sometimes collect VAT on your behalf if your buyers are based in the EU.
Will I need to pay Capital Gains Tax on eBay sales?
This type of tax applies to the profit you make on personal assets you’ve ‘disposed’ of. It’s not based on how much you sold something for, but the gain (or profit) you received from that specific sale. If your total gains are less than £3,000, though, you don’t have to report anything to HMRC.
What’s important here is motivation for the sale. If you’re getting rid of some assets then you’ll usually trigger Capital Gains Tax, but if you’re buying things with the intention of selling them on, then you’re more likely to fit under what HMRC describe as the ‘badges of trade’. This means you’re acting more like a business, so you’ll need to pay tax like one.
Are there any other fees?
There can be, depending on what it is you’re selling. For example, there might be goods and services tax (GST), as well as listing fees added to your seller invoice.
Head to eBay’s fees for business sellers page to learn more.
Will I need to keep a log of my eBay sales?
Regardless of the legal structure of your business, you’ll need to keep records so you can track your eBay income and expenses. You’ll need this information so you can make sure you’re complying with your tax recording and reporting duties – and it will make completing a tax return much easier too! You might:
- Take on all the bookkeeping and accounting responsibilities yourself, including the submission of tax returns and payment of tax due according to HMRC’s deadlines to avoid penalties. The type of tax returns you need to submit depend on how you structure the business when you register it
- Employ a team or person in-house to take on the responsibility of bookkeeping and accounting for your business
- Hire an accountant and/or bookkeeper to do it all for you in a timely and accurate manner
Can I claim expenses if I work from home?
Self-employed people who work from home are allowed to claim costs that relate to the running of their business as allowable expenses for tax relief. This will help reduce the amount of tax you need to pay, so it’s well worth getting to grips with what you might be allowed to claim for. We go into more detail about common expenses for eBay sellers in a separate article, but in terms of working from home it often includes things like:
- Electrical costs (such as lighting)
- Gas and heating
- Maintenance and repairs
- Internet and telephone costs
An accountant can help with this and offer advice on where you could be taking advantage of tax relief and allowable expenses to make sure your business is being as tax efficient as possible.
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.
