eBayTax Guide

Wondering how much you can sell on eBay without paying tax in the UK? Not all eBay users have to pay tax on what they sell, so it’s important to find out what HMRC expects you to declare.

Whether you’re clearing out your wardrobe or making a bit of extra cash from unwanted items, understanding the tax implications of your eBay sales is crucial.

With HMRC’s trading allowance of £1,000, many casual sellers can operate completely tax-free but if your income goes over the trading allowance a self assessment tax return is normally expected.

The line between casual selling and running a business isn’t always clear. Get it wrong, and you could face unexpected tax bills or penalties from HMRC.

Our eBay tax guide will walk you through the essential rules about eBay tax, help you understand HMRC’s requirements, and show you how to keep your eBay venture both profitable and compliant.

I trade on eBay, do I need to pay tax?

Firstly you need to declare any income you make from a business or trade – no matter how small or if income is made online.

You don’t need to pay any tax when you are selling unwanted items which were bought for personal use (unless it qualifies for capital gains tax).

Secondly if you are unsure if your ebay sales qualify as business income it’s best to check and not assume that tax isn’t payable.

It sometimes isn’t clear if selling on ebay is classed as for personal or business purposes. The fact that it’s just a hobby is not an excuse not to pay tax.

HMRC would look at some of the following to help make a decision:

• What was the item sold?
• Why did you buy it?
• Why did you sell it?
• Have you bought and sold similar items before?
• How regularly do you buy and sell on eBay?

The eBay £1,000 trading allowance explained

The trading allowance applies specifically to income from business activities rather than personal item sales.

This allowance is in addtion to the personal allowance and covers your total sales across all online platforms and self employed business activities.

For example, if you combine eBay selling with other income-generating activities like gardening or crafting, the £1,000 limit applies to the combined earnings.

When using the trading allowance:

• You cannot claim additional expenses against your income.
• The allowance applies to your total turnover, not just profits.
• Sales must be declared if they exceed £1,000 in a tax year.

Registering with HMRC to delcare eBay income

If you must complete a tax return form, then you will need to inform HMRC about your status. You will generally use one of the following forms; which one you need depends on why you are filing the return:

• The newly self-employed should use the CWF1 form.
• Use the SA1 form for any other reason (you are now a Buy to Let Landlord for example).

You can now register for most HMRC services online at their official website: www.hmrc.gov.uk

The information they require is straightforward: full name, date of birth, address and your National Insurance number.

When registering as self-employed, you will need to supply further details about your work such as date of commencement and nature of your work.

If you register using official paper forms, then you need to send them to the HMRC address provided on the form; keep a copy and note details of the date you sent the forms back to HMRC.

HMRC will then send you confirmation of your registration along with a UTR (Unique Taxpayers Reference); this number should be quoted with any payments or correspondence with HMRC.

The basics of an eBay traders tax return

Your annual tax return will disclose all taxable income and gains for each tax year. The tax year starts on 6^th April in one year and ends 5^th April of the next.

You must declare all taxable income and gains on your tax return, even if they were taxed at source, such as PAYE from employment income or deductions from bank interest.

If you happen to be self-employed and your business’ year-end is different from that of the tax year (for example some run 1^st January to 31^st December), there are rules concerning accounting periods and tax returns.

The easiest solution is to work your accounting period around the tax year. If your business started on 1st January 2014, then your first accounting period should be 1^st January 2014 to 5 April 2014.

HMRC will normally send you an online tax return notification soon after the new tax year has started.

Submitting your eBay tax return to HMRC

The tax return must be submitted to HMRC following the end of the relevant tax year. You may submit your return on paper and this must be complete by the 31^st October following the end of the respective tax year, or you could file your return online when you have another three months (31^st January) to complete it.

If you do not file your return on time, you will receive an automatic fine of £100 and extra penalties that vary depending on the length of the delay.

The rules changed in 2013; previously, if you owed less than £100 the penalty was set to the sum owed. This is no longer the case and the £100 penalty is automatic.

Paying tax on eBay income

Your tax bill must be paid to HMRC by or on the 31^st January that follows the end of the tax year and there are a number of ways you can pay.

Income where you have already paid tax deducted must still be declared here; it will be taken into account before you receive your final tax bill.

If your personal tax liability comes to over £1,000, or little is collected at source, you may also be expected to pay an instalment on the next year’s tax on 31^st January.

Delaying this payment to HMRC may incur interest and late payment penalties.

Record-keeping for eBay taxable income

It is vital that eBay Traders keep records spanning six years in case HMRC need to examine them later.

eBay’s Selling Manager streamlines record-keeping through automated features. This online tool helps medium-volume sellers track listings efficiently whilst generating bulk feedback and invoices.

Upon upgrading to eBay Selling Manager Pro, sellers gain access to:

• Automated listing and relisting capabilities.
• Payment and postage status tracking.
• Customised email templates.
• Monthly profit and loss reports.
• Product success ratio analysis.

The tool automatically reduces available stock quantities after each sale, simplifying inventory management. Furthermore, sellers can schedule listings and automate post-sale communications ⁵.

HMRC does not offer advice about the method of record keeping but a simple spreadsheet usually suffices at the start, or a simple notebook; you will soon work out which works best for you.

Other taxable income

Some people have multiple sources of income and will need to keep some of the following records:

• Bank interest certificates
• Dividend vouchers
• Portfolio statements
• P45s/ P60 (which from employers)
• P9Ds/ P11Ds (which also come from employers)
• Official documents pertaining to State Pensions and Job Seeker’s Allowance
• Details of pension schemes you are paying into
• Receipts for Gift Aid Scheme donations
• Paperwork assets (such as land and shares) you may have sold
• Both income and expense receipts against any property (building or land) that you may have received income from during the year. This applies to both UK or overseas properties

The list is not exhaustive but provides you with an idea of the sort of documents you may need.

Claiming your ebay business expenses

There are expenses that eBay sellers may claim against their tax burden:

• Stock for resale
• Postage and packing
• Any related stationery and the packaging
• Relevant insurance
• The cost of internet connection
• Fees associated with auction management software (Auctiva for example)
• Consumable IT equipment (toner cartridges and paper)
• Telephone costs – both landline and mobile charges for business use
• Any eBay or PayPal fees
• Cost of advertising
• Offsetting the use of the home as business premises
• Staff wages (see notes below)
• Fees for accountants
• Travel costs for sourcing goods, visiting suppliers etc
• Any bank fees or interest charged against your business account

Motor expenses may also be claimed for the following related to the business:

• Collection and delivery
• Cost of fuel
• Motor repairs and maintenance
• Road tax, insurance & MOT of vehicle
• Vehicle cleaning
• Parking and toll charges

Note: If you use the same vehicle for personal as well as business use, you will need to consider this when claiming expenses. If 20% of the vehicle’s use is for personal reasons, you will need to reduce the running expenses by 20%.

Alternatively, some use the HMRC’s Fixed Scale Mileage Rate. This is presently 45p per mile up to 10,000 miles and 25p per mile thereafter.

The Fixed Scale Mileage Rate includes a depreciation allowance (capital allowance) against the vehicle, not including interest on any loan taken out to purchases the vehicle. You may claim this in addition to the mileage allowance.

Capital allowances

You may claim Capital Allowances against assets such as a car, van, truck or plant and equipment used specifically for your business.

On certain items, this allowance may be up to 100% of the value per annum; you may also claim assets that you might have owned before you started the business if you use them for the business.

Use of home

You are able to claim against a portion of the running costs of your home if it is also your place of work. These expenses may include gas, electricity, telephone, broadband, rent, council tax, mortgage interest, insurance and anything else you would use for your business.

Family wages

Due to being a grey area and a system open to abuse, rules about wages paid to family members have tightened.

Family members may still receive a wage from you, but they must be working for the business and receive wages that can be proven; typically, HMRC will want to see bank statements or cash receipts.

It is important to remember rules on the minimum wage, those concerning young workers, and tax and NI issues.

Joint eBay accounts with family members

Sharing an eBay account with family members presents unique tax considerations. HMRC treats joint accounts differently, affecting both tax obligations and reporting requirements.

When using shared accounts:

• Each person maintains their individual £1,000 trading allowance.
• Account holders share responsibility for tax declarations.
• Income splitting requires careful documentation.
• Both parties must maintain separate sales records.

Parents allowing children to use their accounts should exercise caution. Even teenage sellers must comply with trading rules – if a child’s sales exceed £1,000, they might need to register for Self Assessment.

Several risks exist with shared eBay accounts:

• Refund responsibilities fall on the account holder.
• Chargebacks affect the primary account.
• Bank details link to one person.
• Difficulty proving income separation.
• Shared responsibility for declarations.
• More complex record-keeping and tax requirements.

Ebay Tax Return Accountant

To submit your self employed ebay trader income HMRC uses a system known as self Assessment which calculates how much income tax you may need to pay HMRC.

It involves filling out a tax return form, which is typically submitted online to report income from your ebay business and any other taxable income to HMRC.

It’s crucial to adhere to deadlines and fulfill obligations under self assessment to avoid any late filing or late payment penalties.

Failure to do so or making mistakes on your tax return can be expensive, which is why choosing not to use an accountant may not be a wise financial decision.