HMRC are soon to being what they call their e-marketplaces campaign. This is aimed at those who are using eBay or similar services to trade online and are doing so in a way that HMRC construes as a trade or a business.
The campaign begins on the 14th March 2012.
They offer some questions to help you decide if your eBay activities are as part of a trade and here they are:
Question 1. How, and why, did you get the things you’re selling?
Answer A: you bought them so you could sell them again to try to make a profit.
Answer B: you’re selling personal possessions you don’t want anymore, or things given to you or inherited.
Question 2. How often do you sell things?
Answer A: you make regular sales.
Answer B: you have only ever made one sale and you don’t think you will make any more.
Question 3. How do you sell?
Answer A: by registering as a business seller or as an online shop with an internet auction site.
Answer B: when you have something you want to sell you advertise it, but you don’t sell enough to make it worth setting up as a business user or shop.
Question 4. Do you change or improve the things you’re selling?
Answer A: you mend or change the things you buy (that might include splitting things up into smaller quantities), so you can make more profit on them.
Answer B: you sell things as they are because you just want to sell them quickly.
Question 5. How quickly do you sell things?
Answer A: you sell things that you’ve only just bought and you’re hoping for a profit.
Answer B: you’ve had the things you sell for quite a while.
Question 6. Are you running a business selling similar things?
Answer A: the things you sell are related to your own trade or business.
Answer B: the things you sell are not things you would sell in your own trade or business.
Question 7. How did you pay for the things you’re selling?
Answer A: you had to borrow money to pay for the things you’re selling.
Answer B: you were given them or you paid for them out of your normal living expenses.
Question 8. If you make the things you sell, do you charge more than they cost you to make?
Answer A: you try to sell them at a price that covers your costs and brings in a profit.
Answer B: you sell things that you make as a hobby and you only want to cover your costs.
It would be fair to assume this lays out the criteria they are using to decide who is carrying out a trade and should be paying taxes and who is selling off unwanted stuff around the house.
How will they find offending traders?
HMRC have previously said that they will be using eBay records and comparing them to their own records to identify those that they believe are running a business. They haven’t said exactly how this will be done but presumably it won’t be too difficult to identify those that sell a high volume of goods if eBay is cooperating.
What to do if you think you should be paying tax as an eBay trader
Normally when HMRC runs this sort of campaign they offer an amnesty of sorts to let people come forward voluntarily. They are yet to provide full details of how it will work in this case but the chances are you will be given the opportunity to work out how much tax you owe and pay it without any penalty.
You may also want to take this opportunity to really start thinking of yourself as a business owner and formalise your accounting arrangements. At Caprica Online we offer a great service to eBay traders helping them to set up KashFlow software which can then be easily intergrated with your paypal account. Follow the link below for more details.