Taxation is a difficult and intricately complicated business. And with the advent of internet friendly business system, it is much harder to track the money for IRS. eBay is a commercial business website, which allows various sellers to sell things online.
Whenever there is the talk of business, you can rest assured that there will be profit or loss. But the real question remains, “Do you need to pay a tax on eBay Sales?”
eBay Sales- Taxable or Non-Taxable?
With new rules and regulations, there have been many changes in the same field. Selling and making a profit on eBay is classed as income. It may be another matter that you did not declare such income, but ever since a change in 2016 in the various policies, HMRC has the rights to check up on your eBay sales through various systems and can demand the money.
What is VAT?
Value Added Tax or as commonly called VAT, is a standard rated tax applied to goods and services for business purpose. The burden of the VAT is borne by the final consumer and inputs can be availed later on by the seller.
Exception for Ebay Tax
The taxing rules around eBay sales have been changing ever since the Airnb Tax break, and Trading income tax break was introduced in the year 2016.
With this regulation, many exemptions are provided to the seller on eBay or to any other citizen of the country. The rules suggest that a person can make £1,000 by way of renting out rooms of their houses per year. The amount of £1,000 from rent per annum will be exempt from tax. Furthermore, the government allows the same amount of exemption for trading businesses or trading activities.
Selling on eBay, or selling things on Etsy or providing any kind of part-time service is excluded from tax only to the amount of £1,000.
What kind of Income is Taxable for eBay Sales?
eBay is an online marketplace for people to sell things or buy things. With a growth in the internet markets, eBay has become one of the biggest areas where the sellers and buyers can come to a nexus.
As it was contended before, many people sold old things from their households at a profit. But since these objects were old, it was said to be a hobby. But as per the laws and the legal requirements, any kind of earning/income will be taxable under the law. The profit made out of selling even the smallest
objects is still categorized as an income. Furthermore, the selling of any object or objects on the online platform is still considered as a business.
The sellers on eBay are to declare their incomes to the government so that no adverse actions are taken against them. The HMRC is implementing many ways by which the authorities can track and find the actual data. Upon finding which, the government can demand such money from the sellers. If a seller ignores such notice, further penalties may be imposed on the seller.
Since August 1st, all eBay sellers will be charged 20% VAT. Previously, eBay did not disclose any amounts or any kind of profits made by the sellers. However, the sellers registered in the UK did not disclose much of their income, and most of it remained non-declared, which led to various actions from the government and the HMRC. HMRC, at present, can spy on the data of the sellers on eBay and can demand the tax the sellers owe. Any kind of continuous and regular selling on eBay is classed as a business. And as all businesses go, the declaration of income or profits need to be made in the correct and the relevant forms. At present all eBay sellers are being charged with a 20% VAT, and such amount is to be paid promptly. Furthermore, the sellers without VAT registration will have to register for VAT if their turnover for the twelve months exceeds £85,000.
The VAT paid to eBay UK will be done only after the registration with HMRC has been done. Furthermore, the VAT is charged at the standard rate in the UK, and the amount of tax is mentioned on the invoice given by eBay. The benefit of VAT can be availed later on as an input because VAT allows for such reliefs. A seller will have to register for VAT once the given threshold has been crossed for the annual sales.
Understanding tax and its complexities may prove to be confusing, so it is advised that a seller keeps all the records of the sales, income, profits, and loss handy. With complications on tax calculation and filing, it is advised that you follow the instructions and the legal advice of a tax accountant. Furthermore, the tax filings should be made in time. The omission of which will lead to excessive penalties and strict legal actions.