Selling online and paying taxes
HMRC are sending letters to people who they think earn income by selling goods or services through online marketplaces, but who haven’t told HMRC about some or all of their earnings from online marketplaces. We understand that HMRC will have received third-party information to identify individuals.
This means that those who receive these letters from HMRC may owe tax. The letters will also include a certificate of a tax position, which HMRC is asking individuals to complete and return to them.
The aim of these letters is to encourage anyone who sells goods or services through online marketplaces, to bring their tax position up to date.
When do you need to pay taxes if you sell things online?
If you regularly sell goods or services through an online marketplace, such as eBay, Facebook, Vinted, or any other website or app that operates as a sales platform, you could be classified as a ‘trader’.
In this case, if you are a ‘trader’ and you earn more than £1,000 before deducting expenses, you will need to pay income tax on this.
If you only occasionally sell items, then you should check with HMRC about this, as you may not classify as a ‘trader’.
Here are a few scenarios to help you decide if you need to pay tax on your online sales.
Cash in the attic
Don clears out his attic and decides to sell his unwanted items online. This is a one-off activity for Don, and Don has no intention of making a profit. The items sold are for less or the same as the original purchase price.
Don was able to check the guidance on www.gov.uk to find out if he needed to tell HMRC about the income.
This is unlikely to be classified as trading as these are personal possessions, and less than £6,000 was received. Therefore, it is unlikely he will need to register with HMRC.
Selling home-made greeting cards
Jane works full-time as a teaching assistant. She makes greeting cards for her family and friends in her spare time. People like Jane’s cards and it’s been suggested she sells them online.
At first, she sells cards at cost price, but as business is going well, she decides to increase the price of the cards.
After a few weeks, Jane is making a profit. Jane is now trading as she is selling with the intention of making a profit. She should now keep a record of her expenses and purchases and check if she needs to send a Self-Assessment tax return. If so, she should register online for Self-Assessment with HMRC so she can pay the required tax on the profit she makes.
Oscar collects model cars. He sometimes buys and sells them but also looks for swaps. The swaps are designed to complete sets which Oscar knows will be more valuable as a set than as individuals. When he has a complete set, he offers it for sale or swap. Oscar is swapping and selling things so he can make a profit.
This is likely to be classified as trading, Oscar should register with HMRC for Self- Assessment to pay tax on the profit he makes from these sales.
Importing cameras to sell
Josephine imports cameras and accessories and she sells them online making a profit. She is trading as she makes a profit, and she sells regularly.
She needs to pay tax on the profit she makes from these sales. She should now keep a record of her expenses and purchases and register for Self-Assessment.
What to do next?
If you do need to pay tax on your sales through an online marketplace, then you will need to register for self-assessment.
If you’ve never declared income through a Self-Assessment tax return, you can register online at www.gov.uk “register for self-assessment”.
You need to tell HMRC by 5 October following the tax year that you received your income. If that deadline has passed, you can make a voluntary disclosure for all applicable years.
However, if you are already registered for Self-Assessment, you can include your declaration of online income with your other income from self-employment.