A guide for people who sell items online, through classified advertisements and/or at car boot sales
Online auctions, classified advertisements and car boot sales provide opportunities for selling and the possibility of making untaxed income. This guide will help you to decide whether you have to notify HMRC and pay tax on the profits or income you make from such sales. It is only intended as a starting point. If you need more information about a particular topic, you can find out by contacting ourselves – contact details are found at the bottom of this article. The badges or indicators of trade are as follows:
- An intention to make a profit supports trading
- Systematic and repeated transactions support trading
- Are the goods only capable of being turned to advantage by being sold? Or do they yield income, or give enjoyment through pride of ownership?
- Was this a one-off transaction or part of a pattern that suggests trading?
- Were the goods repaired, modified or improved to sell them more easily?
- Were the goods sold in a way that indicates trading, or to raise cash in an emergency?
- Was money borrowed to buy the goods? Were any profits to be used to repay the loan?
- Goods being traded are usually bought then sold quickly
- Goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade
If you are trading and are liable to pay Income Tax, NICs or VAT, or are liable to CGT, then you must notify HMRC within certain time limits. You have 3 months from the date you first start trading to do this otherwise you could face a £100 penalty.
A tax year starts on 6 April and ends on 5 April the following year. Once you start trading and are liable to Income Tax or CGT, then unless you receive a tax return you have until 5 October following the end of the tax year to tell HMRC that you are liable to tax. For example, if you started trading on 25 March 2013 and were liable to income tax or CGT in 2012-13, then you have until 5 October 2013 to let the Inland Revenue know
If you do not let them know in time you may have to pay a penalty. The penalty is based on the amount of tax chargeable but unpaid by the 31 January the following year (in the example above, the date will be 31 January 2014).
Remember that if you are trading then the three-month time limit for Class 2 National Insurance will have effect first. In the example above this would be on 24 June 2013.
If you receive a Self Assessment tax return you need to ensure that you have all the supplementary pages (self-employment, Capital Gains) required to complete the tax return. For any further advice on this matter please do not hesitate to contact this office