If you are a regular seller on eBay or other online auction websites, how do you know at which point your selling becomes a business in the eyes of the taxman?
Helpfully, HMRC has outlined a number of so-called ‘badges of trade’, so you can work out for yourself where you stand as an online trader:
1. Is there an intention to make a profit (although that alone will not determine trading status)?
2. Also taken into consideration will be the number of transactions, with frequent transactions likely to indicate trade.
3. Have the item or items being sold have been refurbished or modified, to make them more valuable in a sale?
4. Was money borrowed to buy the items being sold, so that the only way to repay the debt is to sell the items?
5. If the items are put up for sale quickly after acquisition, as items held short term are more likely to have been acquired for the purposes of trade.
6. Were the items acquired as gifts or by inheritance? In this case, this would make them unlikely to be items of trade in the eyes of HMRC.
7. Income tax would be payable only if the seller made profits – after deducting allowable expenses – and these profits, when added to other income, exceed the seller's personal tax allowance. But the seller should be aware that even if they don't need to pay income tax, they might need to pay other taxes, such as national insurance and VAT.
There’s more information on the taxes a trader must pay and how to register as a trader at hmrc.gov.uk/guidance/selling/income.htm
* A longer version of this article appears in the December 2014 issue of Saga Magazine.