The entrepreneurial spirit has never been more alive and here at All About Accountants we meet so many entrepreneurs making money from so many different types of businesses. Over the recent years more and more people are finding that they can earn an income from selling online and it always raises the question of tax. We start by considering the motivation behind the sale…
Are you a trader?
If you are selling something you just don’t need, don’t want anymore or perhaps were given you aren’t considered a trader. You aren’t trying to set yourself up in a business to make a profit, you may just want a little extra space in your wardrobe! So there are no tax implications for this.
However, if you are buying items to sell on with the motivation to make some money and are doing so on a regular basis, then you may well be considered a trader and may need to pay tax. Here are some of the questions we ask to work out whether someone is a trader:
Are you selling regularly to make a profit?
When you buy your stock, how long do you hold onto it for?
Do you make items to sell at a profit?
Are you registered as a business on eBay or Amazon etc?
Do you buy things at wholesale to sell on?
Have you Made Less than £1,000 in sales?
From 6 April 2017 HMRC launched a new allowance to help make the tax system easier. This is £1,000 annual tax allowance for micro traders who make less than £1,000 in sales and covers traders in eBay, Amazon and Etsy.
If you have made less than £1,000 then you may not need to file a tax return to let HMRC know about the money you have made. But it is important to understand the rules fully to work out whether you are eligible to claim for the annual trading allowance.
If you are a trader?
Then you must let HMRC know. You own an online business and therefore need to calculate your income and report this to HMRC through self assessment.
You can let HMRC know you are in business by going online here. You have until the 5th October of your business’ second trading year to do this.
HMRC will now expect you to submit a personal tax return online by 31 January each year for the previous tax year. A tax year runs from 6 April to 5 April. On this form, you will report your income from selling online (your sales less your costs).
Recording Your Business Transactions
Like any self employed sole trader, it’s important to keep accurate business activity records and store receipts that support all your business expenses. Doing so is not just a requirement by HMRC but will also make life easier when the time comes to completing your self assessment tax return and claiming for any allowances/reliefs that you are entitled to. Incomplete or inaccurate records will demand more time and hike up any accounting costs and can result in fines from HMRC.
When you are self employed using a spreadsheet to summarise your income and expenses is a straightforward, HMRC compliant way to record your business transactions especially with the introduction of making tax digital from 2019. Making Tax Digital will require most self employed individuals to maintain their bookkeeping digitally and report on their earnings quarterly to HMRC.
Confused by Bookkeeping & Your Business Record Keeping?
My bookkeeping spreadsheets are ready to use and easy to set up. It summarises your business results as well as estimating the amount of tax you need to pay.