If you sell through eBay, you do not automatically need an accountant.
Someone selling unwanted clothes or furniture from home is very different from someone buying stock, listing products every week and using eBay to make a profit.
The important questions are whether you are actually trading, whether you need to tell HMRC about the income and whether your eBay activity has become complicated enough that professional accounting help would save you time or reduce the risk of mistakes.
In this guide, we look at when selling on eBay becomes a business, what you may need to report to HMRC and when using an accountant could be worthwhile.
Are You Selling Personal Possessions or Trading on eBay?
This is the first distinction to make.
If you clear out your wardrobe, garage or loft and sell possessions you no longer want, you are not necessarily running a business.
HMRC states that people selling personal possessions will probably not have to pay Income Tax on those sales. In contrast, you are probably trading if you buy goods intending to resell them for a profit, or make goods with the intention of selling them.
For example:
Probably personal selling
You sell old clothes, a television and some furniture that you originally bought for your own use.
More likely to be trading
You regularly buy second-hand electronics at auctions and resell them on eBay at a profit.
More likely to be trading
You manufacture or customise products specifically to sell through your eBay store.
It is therefore the nature of the activity that matters, not simply the fact that eBay was used to make the sale.
How Much Can You Sell on eBay Before Telling HMRC?
This is where a lot of confusion arises.
There is not a special “eBay tax allowance”.
Instead, the normal UK tax rules apply.
For individuals with qualifying trading income, there is a trading allowance of up to £1,000 of gross trading income per tax year. HMRC says that if your total gross trading income is £1,000 or less, you may not have to tell HMRC about it, although exceptions apply. If gross trading income is above £1,000, you will normally need to tell HMRC.
Importantly, that £1,000 relates to gross trading income, not profit after deducting your eBay fees, stock and other expenses.
It also covers your combined relevant trading income rather than giving you a separate £1,000 allowance for every marketplace or side business.
What If You’re Just Selling Your Own Things?
Selling your own possessions is treated differently from operating an eBay business.
HMRC says that if you are simply selling unwanted personal possessions, you probably will not pay Income Tax on the proceeds.
That does not mean every possible sale is automatically tax-free. Capital Gains Tax can apply in some circumstances where a personal possession is sold for £6,000 or more, although there are exemptions and special rules depending on the type of item.
For the average person clearing unwanted household belongings, however, the tax position is usually very different from a trader who buys products specifically to resell.
Does eBay Report Your Sales to HMRC?
Potentially, yes.
Digital platforms can be required to collect information about sellers and report it to HMRC.
Under the current platform reporting rules, HMRC says that details are not reported under the goods-sales exclusion where a seller makes fewer than 30 sales in the calendar year and receives less than €2,000 for those sales.
This has caused some confusion because those figures are sometimes described online as though they were new tax allowances.
They are not.
A platform reporting your information does not automatically mean you owe tax, and being below the platform reporting criteria does not create a new tax exemption. HMRC specifically states that information being reported by a platform does not automatically mean that tax is due.
Your actual tax position depends on factors such as whether you are trading and the amount and nature of your income.
When Might an eBay Seller Need an Accountant?
You are not legally required to appoint an accountant simply because you have started trading through eBay.
Some smaller sellers are comfortable maintaining their own records and completing their own Self Assessment tax return.
However, professional accounting support can become increasingly valuable as the business grows.
You may want to consider getting help if:
- the number of transactions is becoming difficult to manage;
- you are unsure which expenses can be claimed;
- you sell through several different online marketplaces;
- you are approaching the VAT registration threshold;
- you have started employing people;
- you are considering moving from sole trader to limited company;
- you have a significant amount of money tied up in stock;
- you want regular information about profit and cash flow;
- you are spending too much time dealing with bookkeeping;
- you are unsure whether your records would adequately support your tax return.
An accountant is not simply there to calculate a tax bill. Good accounting should also help you understand what is actually happening financially within the business. Talk to our ebay accountants today to discuss your needs.
What Records Should an eBay Business Keep?
Once you are running an eBay business, relying on the balance in your bank account is not enough.
You need records that allow the underlying business transactions to be identified and your accounts and tax returns to be prepared accurately.
Depending on the business, these may include records of:
- eBay sales;
- seller statements and payout reports;
- refunds and returns;
- eBay and payment fees;
- stock purchases;
- postage and courier charges;
- packaging;
- advertising;
- software;
- bank transactions;
- business equipment;
- other business expenses.
Keeping the records organised throughout the year is far easier than trying to reconstruct thousands of transactions when a tax return or company accounts become due.
What Expenses Can an eBay Seller Claim?
If you are trading, legitimate business costs can generally be taken into account when calculating taxable profits, subject to the normal tax rules.
For an eBay business these could potentially include costs such as:
- stock purchased for resale;
- marketplace fees;
- postage and courier charges;
- packaging materials;
- advertising;
- relevant software;
- payment and banking charges;
- certain professional fees.
Not every payment made by a business is automatically an allowable tax deduction, and special rules can apply to expenses with both personal and business use or to purchases of equipment and other assets.
This is one area where good bookkeeping and professional advice can be particularly useful.
What About VAT on eBay Sales?
VAT becomes an important consideration for successful eBay businesses because registration is based on turnover rather than profit.
The current compulsory VAT registration threshold for a UK-established business is £90,000 of taxable turnover. A business must generally register if its taxable turnover for the previous 12 months exceeds that figure, or if it expects to exceed £90,000 in the next 30 days.
This is a rolling test rather than something that is considered only at the end of your accounting year.
For an eBay seller operating on relatively small margins, turnover can grow much faster than profit, so it is worth monitoring the threshold well before you reach it.
International ecommerce can add another layer of complexity, particularly if goods are stored or customers are located outside Great Britain.
Should an eBay Seller Be a Sole Trader or Limited Company?
You do not need to form a limited company simply because you start selling through eBay.
Many businesses begin as sole traders.
As profits and the scale of the business increase, however, it may be worth reviewing whether a limited company is appropriate.
The best option depends on more than tax alone. You may need to consider:
- expected profits;
- how much money you need personally;
- other sources of income;
- administrative responsibilities;
- commercial risk;
- plans to employ staff;
- plans to grow or sell the business.
Rather than incorporating simply because somebody has told you that a limited company “saves tax”, it is better to look at the numbers and your circumstances first.
Do You Need Accounting Software for an eBay Business?
Not necessarily when you make the occasional sale.
For an established eBay business, however, proper bookkeeping software can make managing larger volumes of transactions considerably easier.
Cloud accounting platforms can be used alongside marketplace data, bank feeds and other integrations to reduce manual data entry and give you a more current picture of the business.
The right setup depends on how and where you sell. A seller operating only through eBay may need something different from an ecommerce company taking orders through eBay, Amazon, Shopify and its own website.
What Can an Accountant Do for an eBay Seller?
As an eBay business becomes established, our ebay accountants can take responsibility for much more than an annual tax return.
Depending on what you need, support can include:
- setting up an appropriate bookkeeping process;
- checking how marketplace transactions are recorded;
- preparing Self Assessment tax returns;
- preparing limited company accounts;
- preparing Corporation Tax returns;
- monitoring VAT requirements;
- preparing VAT returns;
- running payroll;
- reviewing profitability and cash flow;
- helping you understand your financial reports;
- discussing business structure and future plans.
The objective should be to make the financial side of the business clearer, rather than more complicated.
Frequently Asked Questions
Is selling 30 items on eBay a tax threshold?
No.
The number of transactions can be relevant to the rules requiring digital platforms to report seller information to HMRC, but 30 sales is not a general eBay tax-free allowance. Your tax position depends on the nature of your selling activity and the normal tax rules.
Do I have to declare eBay income?
If you are trading, you may need to declare the income.
For individuals, the £1,000 trading allowance may mean small amounts of qualifying gross trading income do not need to be reported in some circumstances. Once total gross trading income exceeds £1,000, you will normally need to tell HMRC.
Selling unwanted personal possessions is treated differently.
Will HMRC know about my eBay sales?
Digital platforms may be required to collect information from sellers and report certain information to HMRC. You should therefore keep accurate records and determine your tax obligations based on the actual nature of your selling activity rather than assuming marketplace income is private.
Does an eBay business have to register for VAT?
Not simply because it sells on eBay.
For a UK-established business, registration will generally become compulsory when taxable turnover exceeds the applicable VAT registration threshold. The current threshold is £90,000.
Do I need a limited company to sell on eBay?
No. You can operate an eBay business as a sole trader.
Whether remaining a sole trader or setting up a limited company is appropriate depends on your individual and commercial circumstances.
Need Help With Your eBay Accounts?
If eBay has moved beyond occasional selling and become a genuine business, getting your accounting processes right early can save a considerable amount of work later.
Yorkshire Accountancy works with online sellers across the UK, providing support with bookkeeping, accounts, tax returns, VAT and ongoing financial reporting.
Find out more about our eBay accountants and how we can help you manage the financial side of your online business.
