Editor | 8 February 2018
Ebay Tax Help

Ebay Tax Help

Rising prices and flat wage growth contributed to a 30% surge in new business sellers on eBay last month.

Last year, the e-commerce platform announced, the top 10 most successful new businesses registered on eBay turned over a combined £6m through their online stores.

Cloud Accountant specialises in accounting and tax support to businesses that sell on eBay.

Some of our oldest customers – big and small companies – have been eBay sellers, and our team of qualified accountants have answered countless accounting queries about the platform. To help some new of the new businesses that have just started selling on eBay, we have answered three of the most common questions that we get about the platform.

Do I have to pay tax on eBay income?

Not everybody has to pay tax on the income they receive from eBay.

If you are selling a few of your old clothes or helping a relative clean out some space in their wardrobe then you probably won’t have to pay tax on this income.

You need to pay tax if you are trading on eBay like a business. There are nine factors that HMRC uses to determine whether you are trading like a business. These are called ‘Badges of Trading’.

How you source the products that you sell on eBay is an important one. If you are purchasing products specifically to re-sell for a profit on eBay then you will probably have to pay tax on the income.

Learn more about HMRC’s ‘Nine Badges of Trading’.

If your eBay shop is considered to be a business then you have to declare profits in your self-assessment tax return. If the return isn’t filed by the January 31 deadline then you will be charged £100, even if you don’t owe anything.

Some larger businesses will also have to submit a VAT return if their taxable turnover exceeds £85,000. This includes businesses which sell both online and offline.

HMRC’s ‘Connect’ super computer gathers information from ‘marketplace’ websites like eBay and Gumtree and uses this data to identify tax cheats, so make sure your online selling business is tax compliant.

How should I record income and expenditure data? 

If you do have to pay tax on any eBay income, you need to record information about your sales and expenditure.

There are two main ways of handling this – manually (on a spreadsheet or using a pen and paper) or using automatic accounting software such as Sage, FreeAgent or Xero.

For simple eBay businesses, where all the income comes from eBay/PayPal and the expenditure profile is relatively straightforward, manually tracking your income and expenditure in a spreadsheet will probably be fine.

But cloud accounting systems have a number of advantages that can really benefit eBay sellers – saving them time and making the business more scalable.

Cloud accountancy software like Xero and FreeAgent have clever eBay add-on features that integrate the software with the eBay platform.

You can track cash flow, perform bank reconciliations, manage payments, monitor store activity and assess profitability, all in one place.

For example, an inventory management function in the cloud software allows you to track stock levels and issue warnings when an item is out of stock. This prevents customers making orders that you will ultimately have to cancel because you don’t have the stock.

Being cloud-based, the software is accessible from anywhere, on any device (so long as you have an internet connection), so you can attend to urgent matters wherever you are.

Do I need an accountant for my eBay business?

Again, not everybody needs an accountant. If you are running quite a simple business, with straightforward income and expenditure then it may be an unnecessary expense.

But you shouldn’t try to do everything yourself. Managing accounts can be a tricky business and takes up a lot of time that you could devote to operations that are more worthwhile.

Accountants make financial processes quicker and more accurate. An accountant can also offer advice on how to scale and grow your business.  

If you have any more questions about Cloud Accountant software or selling on eBay, speak to a member of our accounting team today. Call: 0808 281 0303.