Online marketplaces make it easier than ever to sell online, with a huge range of products and services you might offer. Occasional online selling to get rid of unwanted clothes is one thing, but if it’s something you intend to do regularly, or at volume, you may well need to declare your extra income to HMRC – and pay tax.
If you sell something online then yes, technically you’re an online seller. Ecommerce is a broad term which describes the process of trading goods and services on the internet. There are lots of ways to start selling online, from freelancing platforms, streaming sites, online marketplaces, and beyond to your own ecommerce website.
What is an online marketplace?
Online marketplaces are just like real-life marketplaces, except they’re online. Think of them as virtual shopping centres, with lots of different brands and retailers all in one place. It’s easy for buyers to browse and not need to jump from website to website, and listings will all follow the same format.
You’ll see the term ‘online marketplace’ used by HMRC, and they define it as a business which uses a website or app to deal with the sale of goods to customers and:
Sets the terms and conditions on how goods are supplied to customers
Is involved with authorising or facilitating customer payments
Deals with the ordering or delivery of goods
What’s the difference between an online marketplace and an ecommerce website?
E-commerce websites are slightly different in that they are owned and managed by individual businesses that only sell products and services they choose. Only the people who own the site can create listings, and they have full control over how everything looks and works.
How do I choose which one to use?
It all depends on what it is that you want to sell, and what you’re hoping to achieve.
Online marketplaces typically have a high volume of visitors already. They’re a bit like the online equivalent of a busy market where lots of your potential customers are already shopping. The downside is that there’s also more competition from your fellow stallholders!
It’s usually quicker to get started selling through an online marketplace than it is to set up your own website, especially if you don’t have much technical knowledge. It also means you don’t have to spend time and money building your own site and paying for the hosting and ongoing management.
Selling through an online marketplace isn’t free, though! You’ll usually surrender some sort of commission on sales, and there might also be fees – even if you don’t make any sales.
Some online marketplaces have a particular focus. For example, selling unwanted clothes taking up space in your wardrobe might be a job for eBay or Vinted, whilst providing personalised wedding favours might be better suited to selling on Etsy.
It’s really important you tell HMRC about your extra earnings and pay the right amount of tax owed. If not, you could end up needing to pay the tax back later, along with some heavy fines and additional interest. If your income reaches the £1,000 threshold in a tax year, then you will need to register as self-employed and start paying tax.
What about if I sell to a different country?
This is where things can get a little more complicated. For example, if you’re a creator and use Patreon, then this is a US company registered for tax in the United States. As such, they’ll expect you to withhold some of your earnings to pay US tax, but if you’re based in the UK then HMRC will also expect to collect some tax from you – on the same earnings!