Right now there are over 1.6 billion listings on eBay, the world’s largest peer-to-peer marketplace. Since eBay’s launch, brands like Depop, Etsy, Gumtree, Vinted, Shpock, Preloved, and NextDoor have all become cornerstones of the digital economy, making it easier than ever to find a better home for your unused stuff.
However, many of us are completely unaware about whether we owe anything to HMRC when we sell on these websites or whether we are required to do a tax return. When it comes to understanding who needs to submit a tax return, questions mainly revolve around how much money you’re making.
In this post, we’ll tackle the key things you need to know about selling your stuff online:
- Do I need to tell HMRC?
- Do I need to file a tax return?
- Do I need to pay personal tax and what sort of tax?
- How can I make sure I don’t pay too much tax?
- Are there other taxes to bear in mind?
- How can untied help me?
1. Do I need to tell HMRC?
It depends on whether you’re turning a profit, how much profit you are making, and whether you’re working alongside selling stuff online. You don’t need to worry about telling HMRC if you’re selling the odd item here and there or selling your old belongings for no profit.
However, you will need to let them know if:
- you’re trading on these platforms (i.e. buying and selling goods, or producing goods to sell)
- and your sales hit £1,000 (this is HMRC's trading allowance threshold).
Click here to find out how to notify HMRC that you're self employed.
2. Do I need to file a tax return?
If you’ve told HMRC you’re earning over £1,000 a year from selling things, they will tell you if you need to file a tax return. If you’re slightly over, you may not need to do so.
Many traders are unaware that HMRC may request data and information from these digital marketplace apps and websites, and keep an active eye on transaction software like PayPal. Huge numbers of people fail to complete a tax return when they are legally required and HMRC are cracking down, especially in the digital age.
3. Do I need to pay personal tax and what sort of tax?
There are two main types of personal tax that you may have to pay:
- Income tax applies to what you earn from work, investments and property, etc
- National insurance applies to earnings from work. Over your career your national insurance contributions build up your eligibility for a state pension
For income tax, everyone has a personal allowance, which is the amount they can earn without paying tax. For 2020/21 for most people it is £12,570.
If Depop, eBay, Etsy or other digital marketplace are your only source of income, you can make up to £12,570 before you need to start paying income tax. If you’re making over £1,000 though, you’ll still need to register with HMRC and file a tax return, but you probably won’t have to pay tax if you’re making below the £12,570 threshold.
If you have other sources of income, you may well have used up your personal tax allowance (see above) and as a result, any profits your store makes are likely to be taxed.
There is another type of tax that is often overlooked – National Insurance. This has different – and lower – thresholds than income tax. Even if you’re below the personal allowance threshold, you may need to pay National Insurance. It’s important and could affect your pension. Good news is that if you’re using untied, your National Insurance will be calculated automatically when you submit a tax return.
4. How can I make sure I don’t pay too much tax?
Of course, you’ll want to make sure you’re not paying too much tax. This means deducting expenses from what you make. You can expense listing, auction, and sales fees – the deductions that websites charge you to use their domain, as well as many costs associated with the product – including equipment hire, postage fees, and travel expenses. And if you’re buying and selling, you can of course deduct what you paid for something.
If it is simpler, HMRC allow you to take a deduction of up to £1,000 as your expenses (the deduction can’t be more than the value of your sales). It's commonly called a trading allowance...and guess what? untied calculates and does this automatically. 🥳
You can even claim the cost of untied if you're using it solely for your business.
5. Are there other taxes to bear in mind?
If you are buying and selling certain high value items, you may fall into the realms of capital gains tax. This is reserved for items over £6,000 (not including vehicles) and investments.
And if you’re making this into a full business, you may get close to the VAT registration threshold of £85,000 and to produce full accounts.
6. Can untied help me?
You’re in luck, we support sellers on all online platforms, with a focus on those making under £85,000 annually.
The app makes it easy to stay on top of your taxes, quickly and efficiently calculating income and expenses, prompting you to pay exactly what you owe and claim any tax relief you might be entitled to. It’s quick to use, automating repetitive tasks, freeing up time that no one should want to spend on their taxes! You can save even more time by using the app to submit your end-of-year self-assessment to HMRC directly from your mobile phone. Pretty handy right?
Got any questions? Get in touch.
Useful websites mentioned in this article: