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

[Smouser]

I have read this interesting article on the Guardian this morning.

Basically, all online selling platforms (eBay, Uber, Vinted, Airbnb etc) are now required to inform HRMC of the income people make using their platforms for income tax purposes.

It appears that people have got a £1000 per year exemption where you do not have to pay income tax on that money earned.

Background applicable to me:
I sometimes buy metal work machinery and machinery parts (lathe, mill, welder etc), use them for a while and then sell them on to get the next machine/upgrade to a better machine.

We have already established that you have got a 'income tax free allowance' of £1000 per year for things you have sold. However, for arguments sake, lets say you have sold machinery and made £1200 in a year.

My questions are:

1. Do these machinery count as personal possessions?

2. Do you either pay income tax or capital gains tax or both?

3. How does this machinery exemption apply?

It is all clear as mud to me and I would like to avoid falling foul of the law.

 

[hotponyshoes]

Do you use the things you buy for business use or only personal use?

 

[Smouser]

Personal use only, it is my hobby.

 

[hotponyshoes]

Then no, you don't pay any income tax.

You don't pay capital gains tax either.
All personal items sold for less than £6000 are exempt from that anyway.

 

[hotponyshoes]

Also,
Although ebay etc now have to send the information to hmrc all of that information was already available to hmrc if they wanted it.
It's just a change to the information transfer system.

I'd guess hmrc will be using a computer to trawl through it and pick people to look at.

If you are 35 and have a full time job earning £75k/year I don't think they will be interested in the £1200 you made selling stuff on ebay.
But if you are only "getting lucky" at auctions and selling stuff for a bit more than you paid it might look different.
Ie, you buy a welder for £1000 and sell it a few weeks later for £1100 and do this 12 times a year to reach £1200 profit then the £13,200 turnover might look a bit suspicious especially if you are under retirement age and only earning £10k a year from your day job.
Note that the "trading allowance" is turnover not just profit.

If you are only selling stuff you have used, for personal use only doing your hobby for ages before selling it, then you will be fine.

If your "hobby" is actually the buying and selling rather than using the stuff yourself be a bit more careful.
At least, keep all the receipts of everything you buy and keep records of anything you spend (paint for a vice etc) and the costs of posting any items out or mileage to deliver/collect stuff.
Then if they do haul you in and claim you are a business at least you will be able to offset a lot of the tax due!

 

[winchman]

I believe the local accountant is seeing a few people each month who are selling stuff on Market place / Ebay and have had a letter from HMRC.
Remember at the click of a button HMRC can see your Tax return, DVLA and Land registry that I know of and possibly more?
With this electronic world I would think its near impossible to hide any earnings

 

[Smouser]

Also,
Although ebay etc now have to send the information to hmrc all of that information was already available to hmrc if they wanted it.
It's just a change to the information transfer system.

I'd guess hmrc will be using a computer to trawl through it and pick people to look at.

If you are 35 and have a full time job earning £75k/year I don't think they will be interested in the £1200 you made selling stuff on ebay.
But if you are only "getting lucky" at auctions and selling stuff for a bit more than you paid it might look different.
Ie, you buy a welder for £1000 and sell it a few weeks later for £1100 and do this 12 times a year to reach £1200 profit then the £13,200 turnover might look a bit suspicious especially if you are under retirement age and only earning £10k a year from your day job.
Note that the "trading allowance" is turnover not just profit.

If you are only selling stuff you have used, for personal use only doing your hobby for ages before selling it, then you will be fine.

If your "hobby" is actually the buying and selling rather than using the stuff yourself be a bit more careful.
At least, keep all the receipts of everything you buy and keep records of anything you spend (paint for a vice etc) and the costs of posting any items out or mileage to deliver/collect stuff.
Then if they do haul you in and claim you are a business at least you will be able to offset a lot of the tax due!

Thank you.

Firstly, I wish I made £75k a year

I have made the following assumptions from your post.

1. If you buy things you should keep them for a while before you sell them on - to satisfy HMRC that they are for personal use. How long would be the question - 6 months, 12 months?

2. Possibly take photos of you using the machine (maybe over a period of time) - again to satisfy HRMC that you have bought it for your own personal use and you have not just bought it to sell it for a profit. Would HRMC even accept photos as 'evidence' it was for your personal use?

3. Keep records of all purchases, prices, postage, mileage etc.

I suppose all these questions are for an accountant, but I have never used an accountant. I suppose most people on the forum who have used accountants are people with businesses where other rules apply.

I believe the local accountant is seeing a few people each month who are selling stuff on Market place / Ebay and have had a letter from HMRC.
Remember at the click of a button HMRC can see your Tax return, DVLA and Land registry that I know of and possibly more?
With this electronic world I would think its near impossible to hide any earnings

While searching the internet I came across a few forum posts of people who got HMRC nudge letters. Example here.
Maybe that is why more and more people are selling on FB marketplace accepting cash only

 

[winchman]

While searching the internet I came across a few forum posts of people who got HMRC nudge letters. Example here.
Maybe that is why more and more people are selling on FB marketplace accepting cash only

Whilst I think Cash may be ok, but when you advertise on line you leave a foot print, if you are a tax collector you would look at the foot print not the bank transactions.
Many years ago I sold tools for a living, my accountant explained to me how you may have a dealing with some one dodgy and your receipt in in the pile of paperwork, he told me they look at the dodgy person but they can also look at any people connected in any way, now this is so much easier to do now most stuff is on line.

 

[Smouser]

Thanks.

Just to be clear, my post is not about trying to avoid tax, but rather to understand exactly what is allowed/tax free/CGT free/what can be sold/when you have to declare etc.

 

[winchman]

Thanks.

Just to be clear, my post is not about trying to avoid tax, but rather to understand exactly what is allowed/tax free/CGT free/what can be sold/when you have to declare etc.

I don't think any of us are trying to avoid it but we are making people aware of the rules and how easily you could fall foul of them with out trying
Death and Taxes the only guarantees in life!

 

[Smallfry]

I think this has been blown out of all proportion. It is more of a scare tactic to "remind" those people who are buying and selling as an "off grid" business using eBay etc. That they (HMRC) are giving it more attention than in the past.

Also, as more and more businesses are going online, it is only natural that they will be concentrating more on online activities, to catch tax avoiders, of which there are many.

It has always been a requirement to declare any earnings for tax purposes, so really, its nothing new. Most people have nothing to worry about.

 

[Trevorleach]

I believe the local accountant is seeing a few people each month who are selling stuff on Market place / Ebay and have had a letter from HMRC.
Remember at the click of a button HMRC can see your Tax return, DVLA and Land registry that I know of and possibly more?
With this electronic world I would think its near impossible to hide any earnings

This is why we need to keep cash alive.

 

[hotponyshoes]

Thank you.

Firstly, I wish I made £75k a year

I have made the following assumptions from your post.

1. If you buy things you should keep them for a while before you sell them on - to satisfy HMRC that they are for personal use. How long would be the question - 6 months, 12 months?

2. Possibly take photos of you using the machine (maybe over a period of time) - again to satisfy HRMC that you have bought it for your own personal use and you have not just bought it to sell it for a profit. Would HRMC even accept photos as 'evidence' it was for your personal use?

3. Keep records of all purchases, prices, postage, mileage etc.

I suppose all these questions are for an accountant, but I have never used an accountant. I suppose most people on the forum who have used accountants are people with businesses where other rules apply.



While searching the internet I came across a few forum posts of people who got HMRC nudge letters. Example here.
Maybe that is why more and more people are selling on FB marketplace accepting cash only

Your declared income is just one of the things they look at.
If you have a full-time £75k job then it would not be suspicious if you sold a £2k set of golf clubs on ebay.
If you work part-time for £8k a year and have also sold 10 welders at £1200 each they will be asking questions.

Basically hmrc need "reasonable concern" ie. evidence, that you are buying/selling stuff to make a profit and not paying the tax due on that profit.
If they haul you in they will state that is what they think you are doing and then it is up to you to prove that you are not.
A lot of it will also depend if you are employed or self-employed as well!

#1, no real time frame involved. You could buy a Gazebo to use at your 40th birthday party and sell it a week later.
You could buy a dc tig and sell it a week later to buy an ac/dc tig.
Buy a mig and sell it a week later for a mig that accepts a spool gun and so on.
It's when you have bought and sold 10 gazebos (or welders) in a year that you will need some good explanations..
The items need to be for personal use, or intended for personal use.
If you buy a 30a plasma to cut some drain covers for the driveway but find it won't cut 10mm thick steel you can buy a 40a plasma as well and sell them both on after you cut the covers out.
If you buy a plasma for £150, cut the covers and sell it on ebay for £250 that's fine.
But if you then go back to Lidl and buy 3 more and sell them on ebay, that's trading and tax is due.

It gets more complicated in some situations.(and I do this quite a bit) Example, someone is selling the contents of a home workshop for £10k. You only want the lathe which you value at £2k but he won't split so you buy the lot and sell the rest on.
If you have bought it from your next-door neighbour and sold the rest for £8k then you could easily explain to the inspector that you just wanted a lathe to make some candle sticks for the house.

If you buy 2 or 3 "job lots" a year locally on market place and sell the other items for £10k each lot then you could use the "badge of trade" if you make £50k as a dentist.

If you buy 12 "job lots" a year from auctions and make £15k profit on each plus keep a lathe/drill/welder from each lot and only pay tax on a £8k day job they'll finger you deeply.

#2 May look like you are trying too hard!
Inspectors are not stupid but you can't expect them to know much about welders.
If they ask why you bought/sold 4 welders in 18mths and you can say you are building a beach buggy and bought the mig to weld the chassis, then sold it to buy a dc pulse tig to weld the wishbones then an ac tig for the fuel tank then a stick to make some garden railings etc.. Show them a photo of you sitting in the beach buggy with the kids by the fence and you'll be fine.
If you bought/sold 18 in 18 months, saying they were all for personal use probably won't cut it even if you have photos of you using each one.
They can apply something called the reasonable/typical person test. That is, the majority of people sell the majority of 'stuff' for less than they paid for it.
If you are Mr Lucky and managed to sell 18 welders all/mostly at a profit your middle name better be Convincingly.
If you sell everything on eBay 99p start auction that would hold a bit more weight than listing all the items as buy-it-now for more than you paid for them.

Looking for cheap welders on marketplace to sell on ebay is not a typical 'hobby '
If you buy rusted vices for£20, paint them, sell them for £40, again, not a typical personal past time

This is where an accountant can be helpful although I do this myself and have been through a couple of investigations with no problems.

#3 No need If it's genuinely personal/hobby use. If you are sure you can provide an explanation.
Send me your ebay username and I'll have a look to see if it appears reasonable or not if you like!
If it's £hundreds a year probably not worth the effort.
But if it's £thousands then keep records. That way, if you can't prove you are not trading, you can offset the expenses against the massive tax bill they will stuff you with.
Don't turn up to the first meeting with a file full of paperwork though as that makes it look exactly like a business!

 

[hotponyshoes]

I think this has been blown out of all proportion. It is more of a scare tactic to "remind" those people who are buying and selling as an "off grid" business using eBay etc. That they (HMRC) are giving it more attention than in the past.

Also, as more and more businesses are going online, it is only natural that they will be concentrating more on online activities, to catch tax avoiders, of which there are many.

It has always been a requirement to declare any earnings for tax purposes, so really, its nothing new. Most people have nothing to worry about.

/\ This.
It's nothing new requirements wize.
It's just easier for hmrc now.
They are just getting more connected to online markets etc. They will use AI (and other software) to trawl through sellers listings and flag some of them up for further investigation.

It will make it quicker/easier for them but that is about all.

If you are genuinely not doing anything wrong you will probably be better of as they should be better able to identify you and discount you rather than giving you the stress/worry of a random tax investigation!

 

[skotl]

This is interesting. I recently got invited to join "Amazon Vine" which is a programme where you can receive free items in return for reviews [off-topic spoiler, no they do not expect glowing reviews]. After you have reviewed the items they are yours to keep.
If you're interested, it's a curated list of items so it's not just anything on the site and a lot of it is tat.

In the U.S. and Canada, Amazon report the items to the IRS and reviewers need to pay tax on them. It looks like there was a push from the EU to do the same, but similar nothing in the UK.

The way I understand it is that if I sold the items then I should declare them but if I don't then there isn't (currently) a tax implication like there is in the U.S.


And then this exemption seems to pretty much apply, anyway

 

[Craig-SM]

The key wording here is trading. Trading intends to make a profit as opposed to selling off used items to clear space and convert to cash. How this relates to eBay is the type and timing of sales. Selling your old welder and clearing out some tools from the garage is different to buying and selling those items in smaller quantities to cover your costs and give a small profit. The latter can be seen in numerous sales for the same items as opposed to one off sales.
Uber, AirBnB etc have for a long time been treated as self employed but large majorities have never declared the income. At the same time some like Uber have campaigned to treated as employed but then still want to be off the books

Capital gains on items bought as investments such watches, cars etc is no different to property or shares. Some people have used such items as payment for services or even a means of money laundering. Capital gains also carries an annual allowance the same as income and should be treated no differently and long overdue HMRC cracking down on it.

 

[hotponyshoes]

This is interesting. I recently got invited to join "Amazon Vine" which is a programme where you can receive free items in return for reviews [off-topic spoiler, no they do not expect glowing reviews]. After you have reviewed the items they are yours to keep.
If you're interested, it's a curated list of items so it's not just anything on the site and a lot of it is tat.

In the U.S. and Canada, Amazon report the items to the IRS and reviewers need to pay tax on them. It looks like there was a push from the EU to do the same, but similar nothing in the UK.

The way I understand it is that if I sold the items then I should declare them but if I don't then there isn't (currently) a tax implication like there is in the U.S.


And then this exemption seems to pretty much apply, anyway

View attachment 431773

This plus the £6000 per item limit pretty much removes any capital gains tax.
Income tax is the main issue on selling 'stuff'

 

[bricol]

I read it as if you make over £1000 in income over a year of selling stuff, hobby or not, you need to be declaring it, whoever you are, loft clearing, hobby use, whatever - if ebay tell them you have gained a £1000, then you'll be getting a letter.

 

[MetalMonkey]

The under £1000 income exemption thing has been around for a while now, certainly on the self assessment forms.

From my understanding, under this they are simply not interested in declaring it at all.
Over this you need for fill out a self-assessment return -if you are under your personal allowance you may not need to actually pay anything but it does need to be declared.
The same goes for income from pensions or certain types of savings.

The only difference is where previously it was up to you to decide if you needed to declare it, and up to them to manually request information to see if you had been naughty.
Now ebay etc will be required to pass the information automatically along to HMRC for anybody that is over the threshold, so they will already know if you have been paying it or not.
I presume selling platforms will now require your NI number, I wonder how long it will take to see a spike in cloning/skimming of NI numbers.

That’s assuming HMRC don’t implode under the extra workload – last time I had a query with them they said it was an eight month lead time for a response. They weren’t lying either....

 

[addjunkie]

I read it as if you make over £1000 in income over a year of selling stuff, hobby or not, you need to be declaring it, whoever you are, loft clearing, hobby use, whatever - if ebay tell them you have gained a £1000, then you'll be getting a letter.

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!