Selling goods on online platforms like Vinted, Etsy and eBay can be a great way to make some extra money or even start your very own small business. However, it’s important to understand the tax implications of online selling so you can stay compliant with all the relevant tax rules.
In this blog post, we’ll go over everything you need to know about selling goods online and taxes, from when sales become taxable, how to report your income, and methods for reducing your tax liability.
When selling becomes taxable
In the UK, whether you pay tax on digital sales depends on whether they are considered to be a business activity or not.
In essence, if you make £1,000 or move from secondary income, you may have to register for a self assessment tax return, which is how sole traders and individuals with side businesses pay their taxes.
This £1,000 is known as the trading allowance and applies to individuals with trading income from:
- Self-employment
- Casual services, such as babysitting or gardening
- An activity that required you to hire personal equipment, such as power tools.
This means two main things. First, if you make above this from business activities, you need to register as a sole trader. Second, if you’re just selling personal items, you won’t have to register for self assessment (assuming you’re employed or do not work), even if you do make more than £1,000 off these sales.
However, if you’re crafting or buying goods to sell for a profit, you do have to register when you exceed the trading allowance. That doesn’t mean that you’ll have to pay tax though: you will benefit from the personal allowance, which protects a significant portion of your income from tax (the first £12,570 in 2024/25).
Registering for and completing a self assessment tax return
You must tell HMRC by 5 October if you need to complete a tax return and have never sent one before. You can do that by registering for self-assessment online. If you would prefer to do a paper tax return, you must submit it by 31 October.
In your self assessment tax return, you include details on your income and expenses for the related tax year, which HMRC will use to calculate your taxable income. The deadline is the end of the January following the end of the tax year in question; that means you would need to send an online 2023/24 tax return by 31 January 2025. This is also the payment deadline – if you submit online, the system should give you your tax bill within seconds.
You must adhere to these deadlines. Failure to do so will almost certainly result in a financial penalty.
Allowable expenses
We said that a self assessment tax return is made up of your business income AND your expenses. These expenses are known as allowable expenses, and relate to costs that you make wholly and exclusively for business purposes.
The idea is that because you incurred these costs so you could do business in the first place, you deserve tax relief on them. As a result, you are allowed to deduct their value from your profit before your tax is calculated, ultimately leaving you with a lower tax burden.
Some common examples of allowable expenses include:
- cost of materials used to make items for sale
- stock purchases
- postage and packaging
- platform fees and commissions
- office supplies
- marketing costs
- home office expenses
Do your taxes the smart way
Navigating tax rules for online selling can seem daunting, but with the right approach, you can manage your taxes effectively and avoid any issues with HMRC. Here are some tips to help you stay on top of your tax obligations:
- Keep detailed records: Maintain accurate records of all your sales and expenses. Use accounting software or spreadsheets to help you with this. Keep all receipts, invoices, and proof of expenses.
- Start early: Don’t leave tax filing to the last minute. By starting early, you have ample time to gather necessary documents, review your financial statements, and address any potential issues or questions.
- Use HMRC resources: HMRC has a wealth of resources and tools to assist taxpayers. If your tax affairs are relatively simple, this will be a great place to start.
- Hire an accountant: If you’re unsure about the tax rules, have complex tax affairs, or don’t have the time to worry about taxes, you should consider hiring an accountant. They’ll provide you with personalised advice that will keep you on the side of the law while minimising your tax burden.
Need help with your taxes? We can help. Just get in touch with us today.
