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Ebay has been a thing since the late 90’s (what a way to make us feel old). It’s well recognised and established, so if you’re starting up your very own ecommerce business, hosting it on eBay could be worth considering.

Whether you plan to open for business full time, or you fancy a little side-earner, you need to ensure you’re clued up on when it’s time to inform HMRC.

Thankfully, you’re in the right place. We’ll guide you through all things eBay and taxes.

What taxes do I need to pay as an eBay seller?

You’ve probably heard about the new digital platform rules, and how sites like eBay are now sharing information about your earnings with HMRC. This is so HMRC can crack down on individuals failing to declare their side hustles. It sounds dauting, but it’s important to not let it scare you.

While the new rules came into play in January 2024, it’s still the same principal it’s always been. If you earn over the trading allowance (which is currently £1,000) from eBay you must register for Self Assessment and report your earnings to HMRC.

What taxes you pay depends on what business structure you choose. If eBay is your side hustle, you’ll likely register as a sole trader, but you can register your eBay business under a limited company too.

Selling on eBay as a sole trader

If you’re a sole trader you’ll register for Self Assessment and pay income tax and National Insurance on the profits you make from your eBay business.

How much tax you pay depends on your tax band. Don’t panic, we know it’s confusing! Your ‘tax band’ is basically the total amount of taxable income you earn in a tax year.

See the current tax bands below:
 

Tax Band Your taxable income The rate of tax you’ll pay
Personal allowance Up to £12,570 0%
Basic rate £12,571 - £50,270 20%
Higher rate £50,271 - £125,140 40%
Additional rate £125,140 upwards 45%

 

Read more on the UK tax rates for the Self Employed here. The rates differ in Scotland, but don’t worry, we have a Scottish Income tax rate article too.

It’s important to note that your tax bill is based on your profits. So, if for example you claim allowable expenses, these are deducted from your total sales income, reducing how much tax you’ll need to pay.

It’s also worth noting that going into a higher tax band doesn’t mean you’ll pay the higher rate on all your income. If you are lucky enough to earn a profit on eBay that takes you into the higher rate bracket for instance, you’ll only pay 40% tax on the chunk of your income that falls within it, and not on the entirety of your income.

To find out how much National Insurance you’ll need to pay, read our blog on National Insurance for the Self-Employed.

Selling on eBay as a limited company

If you decide to operate your eBay business as a limited company, the rules are a little different. This is because you’re seen as a separate entity to your business, so you’ll complete Company Tax Returns on your company’s behalf – paying Corporation Tax on your company’s profits. Similar to a sole trader, you can deduct expenses from your company’s income meaning you’ll pay less Corporation Tax on the leftover profits – so ensure you claim everything you’re entitled to!

You may still need to register for Self Assessment if you receive any untaxed income from the business – for instance if you also pay yourself in dividends. If you’re ever unsure, have a chat with your accountant.

Overall, you can operate on eBay as any type of legal business structure, as long as you let them know you are a business.

 
If you are confused whether you’re a business or an occasional seller, read our blog on selling old clothes online.

Do I need to be VAT-registered to sell on eBay?

The honest answer is it depends. VAT (which stands for value-added-tax) is a consumption tax that’s added onto most goods and services sold by VAT-registered businesses. If you sell on eBay, you’ll need to be registered for VAT if:

  • Your sales exceed the VAT taxable turnover threshold (which is currently £90,000) over a 12-month period
  • You’re a seller outside of the UK that stores stock within the UK (that’s a bit of a tongue twister – a better example would be if you’re from and live in Spain, and have a warehouse of stock in the UK)
  • You’re a UK seller who ships things to the EU (this depends on the value of what you ship, who you sell to, and the nature of what you sell)
  • You’re storing stock in a specific country (regardless of your taxable turnover you’ll need to register for VAT if you store stock in another country)

There’s also the option of voluntarily registering for VAT if you think this could help your business be more tax efficient. It’s important you speak to an accountant about what this means for your business, and understand the rules around VAT compliance.

Does eBay ever collect VAT on my behalf?

Ebay will sometimes collect VAT on your behalf if your buyers are based in the EU. This is because under EU VAT law, eBay is responsible for collecting VAT in the following scenarios:

  • If an order with a value up to EUR 150 is shipped to buyers in the EU from a seller outside of the EU
  • If you sell something of any value outside of the EU to buyers in France and Monaco
  • If you’re a non-EU seller on shipments sent of any value within the EU to consumer buyers

Whether you or eBay deducts VAT, you are always responsible for ensuring you collect the correct amount, which will then be included on your VAT return.

It’s super important to do your research, so we’d suggest having a look at your VAT obligations in the UK & EU before you begin selling to EU customers.

 

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What fees are there on eBay?

It’s important you consider any fees before deciding on your official pricing structure. There may be goods and services tax (GST) as well as listing fees added to your seller invoice. Head over to eBay’s fees for business sellers to learn more.

Will I need to pay Capital Gains Tax on eBay?

It depends on what you’re selling.

If you’re unfamiliar with Capital Gains Tax, it applies to the profit you make on personal assets you’ve ‘disposed’ of. It’s not based on how much you’ve sold something for, but the gain you received from that specific sale. If your total gains are less than £3,000 annually, there isn’t anything to report to HMRC.

Read more on our blog The Basics of Capital Gains Tax.

Is it more tax-efficient to be a sole trader or limited company as an eBay seller?

We have a tax calculator to help you with this query! It really depends on how much your total profit is, so even if you estimate it for now, we’ll be able to show you what you’ll take home as a sole trader versus as a limited company.

If you decide to be a sole trader for now, remember you can always incorporate your company as you grow bigger. It’s also worth thinking beyond tax efficiency. Some people prefer their business to be a different legal entity to themselves in order to protect their personal assets, so compare the differences between sole trader and limited company structures in more detail if you need to.

 
Are you an eBay seller that needs a bit of tax guidance? Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people! Learn more about Rachael.

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