Nowadays, selling on ebay is a great source of having an extra income. Even running it on full scale is highly profitable. However, it is crucial to understand how the functionalities of eBay seller tax return UK works. As the HMRC has clear guidelines on how you should report your income and pay taxes.
Therefore, this guide clearly explains what counts as taxable income and how trading allowance works. Also, when you should complete a self Assessment tax return.
Do eBay Sellers Need to Pay Tax?
Now we all know that HMRC taxes the incomes earned from online spending. But, you have to report your earnings if it goes over the trading allowance UK, its £1,000 per tax year. It includes all the money from eBay, Vinted, Etsy, or any other platforms. Understanding your tax obligations is crucial, and our online tax consultant can help you navigate these requirements from the start. Plus, this allowance is even applicable if you hold a job or eBay is your part time venture.
But, if it goes beyond the imposed limit, then you are required to register for taxation. This is why most sellers opt for sole trading. While some set up limited companies for better scalability. Meanwhile, the HMRC expects you to keep all the records and submit your eBay seller tax return UK yearly.
You Pay Tax on Profit But Not Sales
Yes, you have to tax only on your profits. Basically, it allows you to reduce your tax bill. The expenses can include postage, packaging, platform fees, any software, and product associated costs.
Paying Tax as a Sole Trader
Apparently, most sellers start as sole traders only for its simplicity and fast processing. But, you must be registered for self-assessment for online sellers and report your income every year. Also, you have to pay income tax and national Insurance on your taxable profit.
Moreover, the amount you have to pay depends on your income band.
Selling Through a Limited Company
So, you can also sell on eBay as a limited company as well. But here, your business will pay corporation tax on its profits only. Yet, you can still claim business expenses too. In addition, if you withdraw the money as salary or dividends, you are liable to file personal tax returns.
This is why some sellers opt for this model as the profits grow significantly with better protection protocols.
VAT Rules for eBay Sellers
Now, the VAT rules depend on where you are selling and how much you are earning. Besides, you have to register for VAT if your turnover goes beyond £90,000 in a 12-months. Meanwhile, such e-commerce tax rules UK also apply if you produce stocks in the UK or sell them abroad. At times, eBay collects VAT on your behalf. However, you should check if the correct VAT amount is reported.
eBay as a Side Hustle
A lot of people sell on eBay these days as a hobby or for secondary income. But, once your income grows, HMRC may consider it as a business. If this happens, then you have to follow the side hustle tax UK rules. Not sure whether your eBay sales count as a hobby or business? Our comprehensive guide explains when you need to register and report: Do You Need a Side Business Tax Return UK? A Simple Guide.
Conclusion
Now, managing your eBay seller tax return UK can be quite stressful! Especially, if you are running your own online store. However, TaxSimba can handle your bookkeeping, return filing and HMRC compliances.
So that you can focus on scaling your business while we manage the numbers for you.
For complete details on the trading allowance and when you need to report income from online selling, visit HMRC's tax-free allowances guidance.