Mark McLaughlin points out that selling items on online platforms such as eBay can be tax-free, but only within certain limits.
Online marketplaces (e.g., eBay, Amazon and Etsy) are very popular platforms. Sellers range from individuals disposing of their used or unwanted items (e.g., after clearing out their loft!) to established businesses.
Does the occasional sale of secondhand items online or in (say) car boot sales represent taxable income? Selling personal items after clearing out the loft is unlikely to generate an income tax liability, because such items will normally have been bought at a higher cost than their secondhand value, so no trading profit is made (or no allowable loss arises).
For those fortunate enough to unearth valuable personal property suitable for the Antiques Roadshow, it will often be subject to the capital gains tax (CGT) rules for chattels, and either be completely exempt from CGT (as ‘wasting chattels’) or exempt where the item was bought and sold for gross consideration of £6,000 or less.
Not taxable…within limits
Regular, organised sales of (say) handmade items are likely to attract the attention of HM Revenue and Customs (HMRC). Nevertheless, such ‘trading’ might not be taxable or reportable. If a hobby is (or becomes) taxable, a ‘trading allowance’ is generally available. The trading allowance exempts trading, casual and/or miscellaneous income of up to £1,000 per tax year from income tax.
If the individual’s annual gross income from trading is £1,000 or less, it may not be necessary to notify HMRC or declare this income on a tax return (although a tax return may be required for other reasons). If the individual does not want to use the trading allowance, they may make an election for this ‘full relief’ not to apply, so profits are calculated using the normal rules and they complete a tax return accordingly (e.g., if the trade was loss making).
If the individual’s annual gross trading income exceeds £1,000, they can choose between making an election to treat their taxable profit as their total relevant income less the trading allowance without any separate relief for expenses or capital allowances (‘partial relief’), or by calculating their taxable profits as normal (i.e., total income minus actual expenses and capital allowances – the ‘profit method’).
Be careful!
In many cases, the scale of activities will be such that the trading allowance of £1,000 per tax year is insufficient to exempt the gross income from those activities, so it will be necessary for individuals to register for self-assessment and pay tax on their profits.
Failure to notify HMRC of this taxable income at the proper time could also result in late notification penalties becoming payable. For example, in Milasenco v Revenue and Customs [2023] UKFTT 620 (TC), the taxpayer was found to be trading on eBay. In addition to being liable to tax on self-employment income from online trading in goods for four tax years (2013/14 to 2016/17), he was charged substantial penalties based on deliberate errors in his tax returns for three of those tax years, and on deliberate failure to notify HMRC for the fourth tax year.
Practical tip
The taxpayer in Milasenco had previously traded on eBay with a trading name for several years and operated a PayPal account showing numerous payments from different individuals. Take a reasonable and realistic view on whether a trade exists. Traders who bury their heads in the sand are likely to be caught sooner or later.
