Right now there are over 1.5 billion listings on eBay, the world’s largest peer to peer marketplace, ranging from iPhones to ice cream makers and pretty much everything in between. Since eBay’s launch, a huge number of websites and apps have popped up. Brands like depop, Etsy, Gumtree and vinted have 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. There are some fundamental questions to be answered when it comes to understanding who needs to submit a tax return and these revolve mainly around how much money you’re making.
In this article, 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, what sort and how can I make sure I don’t pay too much?
- 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 you’re making a profit above £1,000 (this is their threshold).
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 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, what sort and how can I make sure I don’t pay too much?
There are two main types of personal tax that you may have to pay:
- income tax, which is a tax on what you earn from employment, self-employment, investments etc
- National Insurance
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 £12,500.
If depop, eBay, Etsy or others are your only source of income, you can make up to £12,500 before you need to start paying income tax. If you’re making over £1,000 though, you’ll need to register with HMRC, but probably won’t have to pay tax if you’re making below the 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 which 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.
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). And guess what? untied calculates and does this automatically. 🥳
4. 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.
5. 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 frankly 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.