E-commerce websites such as eBay are one of the most popular ways for customers to buy products and services. The popular website has attracted thousands of companies and private sellers who want to reach a wider audience.
You can post multiple products online and wait for customers from all over the world to buy them with a few clicks. However, just because you are selling products online doesn't mean you are exempt from the usual taxes that sellers face.
In this guide, we'll look at what the tax rules are in regard to income from eBay, such as what is considered taxable income, when you need to pay tax and other expenses to consider.
The money you make from sales on eBay is subject to the Income Tax laws in your country. In the UK, this means that you may have to pay Income Tax if you earn over a certain amount.
The standard Personal Allowance rate is currently £12,570, so you don't have to pay tax if you earn under this amount through eBay. However, you will have to register for Self Assessment if you are self-employed and earn over £1,000 through your business. You will also have to register for Self Assessment if you have another primary job to make sure that you are paying the right amount of tax across the income you make in both jobs.
Continue reading to find out how and when you pay tax on eBay sales, as well as the amount of Income Tax you may have to pay to HMRC.
The tax you must pay depends on the extent of your earnings. You will need to list how much profit you make from your eBay sales alongside your other income on the Self Assessment form.
Depending on your overall income, you will be placed in one of four tax bands, as seen in the table below:
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic rate||12,571 to £50,270||20%|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
The example scenarios below describe how much tax you'd have to pay if you work another job in addition to selling on eBay or if eBay is your sole source of income.
You earn £30,000 in a single tax year through your eBay business, which is your sole source of income. £12,570 of this is tax-free, which leaves you with £17,430 that will be taxed at a rate of 20%.
You have a primary job that pays £15,000 a year, and your eBay side hustle earns you £5,000 in a year. You will have to pay 20% tax on £2,430 from your primary job as this is over your £12,570 Personal Allowance. You will also have to pay 20% tax on the £5,000 you made through eBay sales as you have already used your Personal Allowance for your primary income.
You earn £43,000 from your primary job and £12,000 in a year through sales on eBay. The combined income from these two jobs is £55,000, which puts your earnings into the Higher rate tax band. You can use your Personal Allowance on the first £12,570 from your primary job, which leaves £30,430, which will be taxed at the Basic tax rate of 20%. You would also have to pay 20% tax on the first £270 you make from your eBay earnings, as well as 40% on the remaining £11,730.
You have a primary job that pays you £9,000 annually, as well as making £7,000 through eBay sales. These amounts each fall below the Personal Allowance threshold. You can therefore contact HMRC and ask for your Personal Allowance to be split across your two sources of income. After deducting £9,000 of the Personal Allowance for your primary job, you are left with £3,570 Personal Allowance to apply to the income from your eBay sales. You'll have to pay 20% on the remaining £3,430 from your eBay income.
The government gives businesses a Trading Allowance of £1,000, which means you don't need to declare your eBay sales as a source of income unless you make over this amount. However, it's advisable to keep detailed records of your sales even if you don't pay tax in case HMRC ask to see business documents or you end up earning over £1,000 a year in the future.
The deadline for submitting your Self Assessment is 31 October if you're sending a paper form or 31 January if you are completing the form online. You need to have already registered for Self Assessment by 5 October. HMRC must receive your form and the money you owe by the deadline. Otherwise, you may be faced with penalties.
If you only sell a few personal items on eBay every so often, you're not strictly selling on eBay as a business and don't need to be taxed as one. However, if you are buying or making items with the intention of making a large profit, you will need to report your sales to HMRC so that you can be taxed accordingly.
eBay selling fees are considered a business expense because they are an unavoidable cost of running your operations. You can also count other fees as business expenses, such as postage, stationery supplies and PayPal deductions.
Business expenses are tax deductible, which means you can deduct these costs when working out the taxable profit from your business. You must keep a record of your expenses so that you can use them in evidence when you are filing your Self Assessment form.
eBay allows private sellers to list up to 1,000 items for free. After users have reached this limit, they charge a 35p listing fee per item, as well as a final fee based on the price of a product when it is sold. Sellers are charged 12.8% of the total amount of the sale, which includes postage fees and taxes. Sales over £5,000 are charged 3% of the sale price.
You might owe Capital Gains Tax (CGT) if you sell second-hand items of significant value on eBay. You have to pay CGT on personal items worth over £6,000 (excluding your car). The CGT allowance is £12,300 a year, which means you don't have to pay this tax unless you sell second-hand or personal items over this amount.
CGT must be reported in your Self Assessment and paid along with your Income Tax when you submit your Self Assessment tax return.
You must register for VAT if you have a turnover of over £85,000 in a single tax year, or you expect to exceed a turnover of £85,000 in the next 30 days. Businesses that are based outside of the UK and supply goods and services to the UK must also register for VAT.
A VAT return should usually be submitted to HMRC once every three months. The deadline for submitting the return is usually one calendar month and seven days following the end of the accounting period. The VAT return should include how much VAT you've charged customers, as well as how much VAT you've paid to other businesses.
The standard VAT rate for most goods and services is 20%. As an eBay seller on an EU or UK site, you must list the gross price of products, as well as the VAT rate that was used to calculate the gross price. eBay automatically adds the VAT cost onto sales to EU and UK customers. This means that products on the website always list the correct VAT rate, as well as ensuring that customers aren't charged VAT twice.
HMRC collects Income Tax from self-employed individuals using the Self Assessment system. You must list the income you have made through your eBay business, as well as additional information such as your pension contributions, benefits and other forms of income (such as dividends and interest).
You need to pay your Income Tax through Self Assessment directly to HMRC. This can be done via a number of methods, as listed below:
- online bank account
- online or telephone banking (Faster Payments)
- debit or corporate credit card online
- at your bank or building society
- Direct Debit
- by cheque through the post
You need to allow three days for payments made through Bacs, cheque and Direct Debit (if you have already set one up with HMRC) to be processed. If you haven't already set up a Direct Debit with HMRC, you need to allow five days for the payment to be processed. All other payment methods should be processed on the same or next day.
It's important that you allow enough time for your payment to be processed before the Self Assessment deadline. You may be faced with penalties if the payment is not made by the deadline. If the deadline falls on a Bank Holiday or weekend, you need to ensure that your payment reaches HMRC by the last working day before the deadline.
You will have to pay a penalty of £100 if you submit or pay your Self Assessment tax return up to three months late. The penalty will increase if you take longer to submit your tax return or payment, along with interest on the late payments. You can use the government website to estimate the penalty you will have to pay for your late submission.
You can be prosecuted if you do not declare income to HMRC when you should (such as in a Self Assessment tax return). This includes income you earn through eBay sales, as long as the income is over the tax-free business allowance. If this was a mistake, it's a good idea to declare the additional income as soon as you can so that HMRC looks more favourably on the situation.
How to register for Self Assessment
You can register for Self Assessment on the government website. You will need a Government Gateway user ID and password to sign in. If you don't have a user ID, you will be given the option to create one on the login page. After registering, you will be sent Unique Taxpayer Reference (UTR) by post within ten days (21 days if you are based outside of the UK).
You will need to register for Self Assessment again if you don't submit a Self Assessment return the previous year. The deadline for Self Assessment registration is 5 October in your business's second tax year — you could be fined if you miss this deadline. After you have registered, you can submit your Self Assessment return online any time before the deadline (31 January for online submissions).
When you register for Self Assessment, you also have to register for Class 2 National Insurance. The rate for the tax year 2022/2023 is £3.15 a week and should be paid through Self Assessment.
There are various costs that you can claim as allowable expenses when you are self-employed and are working out your taxable profit. This includes the following expenses:
- office costs (such as stationary)
- marketing and advertising (such as social media adverts)
postage costs (such as stamps)
You can deduct business expenses for equipment, machinery and business vehicles as capital allowances when you are calculating your taxable profit. However, you cannot claim allowable or capital allowances if you use the £1,000 tax-free trading allowance. It's also possible to claim a portion of the following as business expenses if you work from home:
- Council Tax
- internet and phone bills
- rent or mortgage interest
You will need to divide your costs so that you can properly assess the portion you use for business purposes. For example, if you have five rooms in your house, you will need to divide your utility bill by five to work out how much electricity and heating you use in your home office. You should then adjust the calculation based on how many days you work in your office (divide the previous sum by seven and multiply by the number of days you work from home).
As a private seller on eBay, you are subject to paying tax as you would be in any other self-employed business venture. This means that if you earn over the £1,000 tax-free business allowance, you must submit an annual Self Assessment tax return to HMRC.
You can claim eBay seller fees as business expenses, which means the amount is deducted from your taxable income. You can also claim back expenses for additional fees such as postage and stationery.