With households feeling the pressure due to rising inflation and little or no pay increase, many will be looking for ways to raise extra cash. Ebay and car boot sales are a good way to do this but are there any tax implications?
Jane Mather, President of Humberside & District Society of Chartered Accountants, explains where you could be liable:
“If you are only selling your unwanted possessions you will probably escape being taxed. However, if you are trading or making a capital gain you might have to pay some tax on your income or gains”.
The majority of sellers online and at car boot sales are simply selling unwanted goods but HM Revenue & Customs (HMRC) is concerned about the minority who could be trading and conducting a business. The penalty for hiding tax that should have been paid is a fine of up to 100% of the unpaid tax plus payment of the tax itself and interest.
You are trading if you:
· Sell goods you have bought for resale
· Make items yourself and sell them to make profit
· Sell or buy items on behalf of others for financial gain (for example on commission)
· Provide a service and receive payment (whether in cash or kind)
If any of these statements are applicable to you, you should consider the services of an ICAEW Chartered Accountant to ensure that you do not fall foul of HMRC. If you are trading you may have to pay income tax and National Insurance Contributions (NICs) and may also need to register for value added tax (VAT).
You are not trading if you:
· Sell occasional, unwanted personal items through internet auctions or classified advertisements
· Attend a car boot sale to sell unwanted household items but not on a regular basis
Jane adds: “You should also remember that even though you may not be classed as a trader and so not liable for income tax on your profits, you may still be liable for capital gains tax. If you are in any doubt you should speak to an accountant or contact HMRC”.
HMRC’s helpline for the newly self-employed can be reached on 0845 915 4515
To register a new source of income from a business for income tax, the latest you can register is by 5 October after the end of the tax year for which you need a tax return. The tax year runs from 6 April one year to 5 April the next. So if, for example, you have tax to pay on a business trading in the 2010/11 tax year, you need to let HMRC know by 5 October 2011.
If you decide that you are in fact trading and you are liable to pay income tax, NIC or VAT then you must inform HMRC and register as a business as soon as possible.
Further information can be found at www.hmrc.gov.uk