Selling things online - HRMC, capital gains tax vs income tax

[skotl]

Gross trading income, so in effect how much has come in regardless of your costs. You dont have to sell much to hit a grand!

Hmmm... not sure that's correct. Even if it were a business tax return you only pay tax on the gross profit, so I can't see how "trading" on an income tax return would be any different

 

[Pigeon_Droppings2]

If you are buying/selling on a personal basis and making gains above the personal thresholds then these need to be declared (via a self assessment submission)...I don't think anything has changed on this front.

What has changed I believe is potential enforcement of the existing rules.

Just google "HMRC Connect" to see what they're up to.

I suspect I may need to start declaring losses where I sell stuff on ebay just so everything cross checks with HMRC and my annual self assessment....they will only see the sale not the loss on ebay for example.

 

[addjunkie]

Hmmm... not sure that's correct. Even if it were a business tax return you only pay tax on the gross profit, so I can't see how "trading" on an income tax return would be any different

Ergo, if your keeping records your are a business and need to declare your dealings appropriately.

 

[hotponyshoes]

The £1000 is a "trading allowance" and is indeed turnover/income not just profit.

Tax is only due if you are "trading" ie, selling stuff for a profit.
There are exemptions for personal items so you can sell those at a profit with no problems. You just need to convince hmrc they are personal items if they ask.

You can also sell other stuff, for profit, upto £1k.

So, you could weld old horseshoes togeather in your shed and sell £999 of hanging baskets a year on ebay without having to notify anybody.

You could buy a £1500 handbag in the sales for £800 and give it to the missus for her birthday. If she doesn't like it and you then sell it on an ebay auction and it makes £1200 that's fine.

If that's all you do in a year then you may still get the letter from hmrc as you will have an "undeclared income" of £2199 but you can ignore the letter and explain yourself easily if they haul you in.
(Hopefully the software will be smart enough to discount you though?)

If you buy 3 handbags at £300 each and sell them at £350 each you'll have to explain what you were doing to not be trading in handbags.
It's up to you to show the 'stuff' is for personal use. Not for hmrc to prove you are trading!

I'd think the main point of assessment is if the 'stuff' would normally sell for a profit if you were not buying it cheap/in bulk to resell.
If you bought a £5k rolex 10yrs ago they won't ask many questions if you sell it for £8.5k.
If you buy 50 casio watches for £750 and sell each one at £55 in a year good luck explaining it.

Similarly, if you weld horseshoes into hanging baskets and sell £999 a year but you also happen to be a self-employed farrier you'll have to convince hmrc this is a hobby you do in your spare time and you should be entitled to the £1k allowance.
Not that you are just making them for extra business income and the £1k is lost in your existing personal allowance.

 

[Smouser]

Thanks. Things are becoming clearer, slowly.

I still feel it is like a 50/50 sometimes if HRMC decides if you are trading or you are just selling some of your personal items.

I bet in a certain situations you could argue either way.

Let's say I buy old machines, use them and then sell them on (normally for a 'profit' if you don't take into account the time and materials spent on them because they have had to be repaired, cleaned and serviced before I could use them).

One guy can argue you are a trader because you modified/repaired/made it more marketable to sell and you got more money for the item than what you paid for it (unless you can write off value for your time, materials, mileage etc).

On the other hand, you can argue it was for your own personal use, you had to repair and service it to use it but after you were done you sold it on.

In my case it is not like it is 5 or more of the same item (like a welder as an example) but it is the same class of items (workshop machinery).

Actually, it is still clear as mud

 

[hotponyshoes]

The trading allowance works well in some situations. It basically means you can receive £1k a year without classing as self-employed.

If you work full time in a factory packing eggs and are on paye then you can also weld horseshoes together in your shed at weekends and if you sell them for less than £1k a year you don't need to do anything / tell anyone.

If you are a stay-at-home parent looking after children you can do the neighbours ironing for less than £1k a year.

Simples.

Things are more complicated when you are primarily self-employed.
If a farrier buys a job-lot of fishing reels for £1500, keeps 2 for myself, sells the rest for £1400 I'd be happy to not declare that as income on my tax return.
If a couple of months later I did the same with a job lot of fishing rods I'd still be happy to explain if asked.
But, if I sold £500 of hanging baskets made from old shoes I'd be declaring it as income.

Things in-between get blurry.
If you are a self-employed gardener can you make/sell hanging baskets to your customers?
Maybe, if you can show all your customers pay a fixed monthly fee for garden mantainance packages?
But if you have previously claimed a welder as a 100% business expense because you need it to repair the deck of your mower they might pick up on the connection...

 

[brightspark]

jesus christ clicked on this post then dropped off looking for stuff and this came up instantly there watching every move . and they talked about china https://www.msn.com/en-gb/news/news...BE&cvid=08c6fa7bf57e44d0be7dbd2482b137e0&ei=8

 

[hotponyshoes]

Thanks. Things are becoming clearer, slowly.

I still feel it is like a 50/50 sometimes if HRMC decides if you are trading or you are just selling some of your personal items.

I bet in a certain situations you could argue either way.

Let's say I buy old machines, use them and then sell them on (normally for a 'profit' if you don't take into account the time and materials spent on them because they have had to be repaired, cleaned and serviced before I could use them).

One guy can argue you are a trader because you modified/repaired/made it more marketable to sell and you got more money for the item than what you paid for it (unless you can write off value for your time, materials, mileage etc).

On the other hand, you can argue it was for your own personal use, you had to repair and service it to use it but after you were done you sold it on.

In my case it is not like it is 5 or more of the same item (like a welder as an example) but it is the same class of items (workshop machinery).

Actually, it is still clear as mud

The big question is are you actually selling them for a profit or not?
If you buy a welder for £200, fit a new drive roller at £50 and a new torch at £75 then sell it for £300 you make a loss.

If you buy a broken welder for £100 and spend 3 solid days fault-finding then replace a capacitor for 80p then sell it for £150 you make a profit.
OK, to a normal person, 3 days work for £49.20 is not making money but you have to explain that to hmrc.
That's easy if you are a doctor on £80k as you can say you do it for fun.

If you don't have a "proper" job and you spend 6 days a week fixing/selling welders then they will want a cut of the £5k a year profit you are making

(No tax would actually be due on £5k/year but you get the point)

 

[Pigeon_Droppings2]

Don't get the £1k limit...isn't the CGT limit £6k pa...so wouldn't everyone just declare their personal items sold as capital gains?

...I'm missing something I think.

 

[hotponyshoes]

Don't get the £1k limit...isn't the CGT limit £6k pa...so wouldn't everyone just declare their personal items sold as capital gains?

...I'm missing something I think.

The £1k limit is nothing to do with capital gains.

It's basically a "trading allowance" for housewives to make jam.
You can make upto £1000 a year without having to inform hmrc that you are "trading"

 

[Pigeon_Droppings2]

Ah...so the £1k just relates to a "trade" or work...whereas buying/selling used items is still under capital gains.

Ok got it...I think.

 

[hotponyshoes]

Ah...so the £1k just relates to a "trade" or work...whereas buying/selling used items is still under capital gains.

Ok got it...I think.

Making or buying things with the intention to sell them for a profit is "trading"
If you walk along the road looking for hubcaps to sell on ebay that's trading.
Loosing a hubcap from your own car and buying a set of 4 new ones then selling your old 3 on eBay is not trading.

You can receive upto £1k a year without having to tell hmrc you are trading
(There may be benefits to telling them if you are below the £1k but I don't think they will apply to many on here)

If you buy new or used items with the intention to use them yourself for personal use then sell them on and make a profit that is not trading.
However, you may have to explain to hmrc at some stage what you are doing.
Remember that if you are self-employed and you use a welder yourself as part of the work you do then that is business use. Not personal use!!

The hard part is convincing them you are not trading. See my examples in previous posts of what will be easy to explain and what might be a bit harder...

The capital gains is not really relevant to this thread.
If you buy a painting for £1k, keep it for 10 years, sell it for £75k hmrc will want a cut of that "profit" called capital gains.
Generally tools, workshop stuff, etc is not subject to capital gains tax anyway.

But yes, although the painting may have been bought purely for your personal use (in the house to look at) the capital gains tax is a way for them to get a slice of that pie if you happen to make a few quid on it...

 

[atomant48]

Don't get the £1k limit...isn't the CGT limit £6k pa...so wouldn't everyone just declare their personal items sold as capital gains?

...I'm missing something I think.

And only 3k after April

 

[hotponyshoes]

Don't get the £1k limit...isn't the CGT limit £6k pa...so wouldn't everyone just declare their personal items sold as capital gains?

...I'm missing something I think.

Also, the £6k is a threshold Per Item.
Not per year.
Although you also have a £12k? allowance per year but that is being reduced sometime soon.

So you can sell 2 paintings at £5k each without paying capital gains tax.
However they are very wise to people keeping below the limits on stuff like this and are well aware of those who try to sell the canvas for £5999 along with the frame for another £5999.
And the auction houses will also be reporting in the same format.

If you do have a stash of Rembrant's go and see an accountant rather than taking tax advice from a welding forum

 

[Pigeon_Droppings2]

Also, the £6k is a threshold Per Item.
Not per year.

Now you've lost me I'm afraid!

Capital gains is relevant...as it's in the title of the thread!

 

[Craig-SM]

Also, the £6k is a threshold Per Item.
Not per year.
Although you also have a £12k? allowance per year but that is being reduced sometime soon.

So you can sell 2 paintings at £5k each without paying capital gains tax.
However they are very wise to people keeping below the limits on stuff like this and are well aware of those who try to sell the canvas for £5999 along with the frame for another £5999.
And the auction houses will also be reporting in the same format.

If you do have a stash of Rembrant's go and see an accountant rather than taking tax advice from a welding forum

The £6k is a CGT allowance and it's on the gains of all your capital investment disposal so you sold shares at a loss of £3k, made a £15K gain on property and £4k on a painting then your taxable capital gain is 10K (15 + 4 - 3 = 16 less 6 allowance). Gains and losses are calculated at selling price less selling cost, purchasing fees and other allowable costs.

 

[hotponyshoes]

Now you've lost me I'm afraid!

Capital gains is relevant...as it's in the title of the thread!

I ment its not relevant to the op.
As in, nothing he is doing/selling will attract any capital gains tax.

 

[hotponyshoes]

The £6k is a CGT allowance and it's on the gains of all your capital investment disposal so you sold shares at a loss of £3k, made a £15K gain on property and £4k on a painting then your taxable capital gain is 10K (15 + 4 - 3 = 16 less 6 allowance). Gains and losses are calculated at selling price less selling cost, purchasing fees and other allowable costs.

I've just looked it up and I am out of date with it!
The allowance was £12,300 but that dropped in April LAST year to £6k
Looks like it's dropping again this year to £3k

 

[Smouser]

Now you've lost me I'm afraid!

Capital gains is relevant...as it's in the title of the thread!

We all need accountants to understand all of the minefields

I understand the capital gains tax is not applicable to my situation.

However, just as an example, let's say you have bought a painting for £5k and 5 years later you sell it for £10k. Does that then only attract CGT or CGT and count as income?

 

[Pigeon_Droppings2]

I ment its not relevant to the op.

Doesn't that depend whether the machines the OP bought/sold are personal assets?...in which case capital gains rules apply?