kezmark started this topic @ 00:03 on 06/09/2006
hello
how does tax come into play when you sell on ebay?
do you get taxed on when you buy stock and when you sell it/one or the other/not at all??
cheers in advance for your help!!
kezmark
RE: tax!!!! selling on ebay
James Smith | 06/09/2006 09:24 AM
Its depends.
If you are simply selling some second hand items that you already own (ie clearing the loft) then no tax is due.
If you are running a business - ie buying things to sell the normal rules of taxation apply. Ie you will generally need to register as self employed (unless you are excepted due to the small size of your business and have no other income) and pay taxes on your profits.
Profits are computed as your sales value, less all your costs. Costs will include the costs of items you have sold, but not the value of stock you have on hand at the end of the period in which you draw up your accounts.
From the type of questions you are asking it sounds as if this is all very new to you, I would suggest in the first instance you read the main sections of this site and the business link website about starting a business, and your tax responsibilities. I understand that the business forums on ebay also have help on this topic.
Hope this helps.
Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: RE: tax!!!! selling on ebay
kezmark | 06/09/2006 01:52 PM
cheers James
so you only get taxed once - on your profits?? ive read loads of info on this site but cant make out a real answer to my question...does it mean the following?
£6.93 Retail -VAT = £5.90 - £4.40 Cost = £1.50 Profit - VAT again = £1.27 profit?
or
£6.93 Retail - £4.40 Cost = £2.53 Profit - VAT = £2.15 profit?
as you can see there's a huge difference in the two scenarios i have made! is it the second example thats correct?
cheers
RE: RE: tax!!!! selling on ebay
BrettUK | 06/09/2006 02:59 PM
kezmark,
Don't get confused with VAT and TAX they are two separate issues. I am not an accountant so let me see if I can put it in layman’s terms as it was explained to me years ago.
you purchase an item lets say £5 you then sell it at £6 so your profit would be £1 that is what you pay tax on. This is a very simple explanation. Other factors will come into play as and when you run a business but for now let’s keep it simple. Let’s say you make £100 in a month profit you would be liable for tax on this minus your taxable overheads e.g. phones, premises, stock etc.
In regards to VAT it will be calculated on purchases in one of two ways. either including VAT for example £100 + VAT =£117.50 or £117.50 so if you pay for an item that has VAT on it (you can tell if it has VAT on it because the receipt should have a VAT number) and you are registered for VAT you can claim back the £17.50 that you paid out but if you are not VAT registered you can't. On the reveres of that if you purchase equipment for business and you pay VAT on it you can claim that back as well so it can work out that you are owed money.
I hope the above is clear and not to confusing.
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RE: RE: tax!!!! selling on ebay
kezmark | 07/09/2006 01:14 PM
cheers brett, think i understand it all now! so would the following statement be true?
Retail Costings Costings + VAT Profit Profit - Tax
£8.93 £4.40 £5.17 £3.76 £3.20
so true profit is £3.20??
also, how do you qualify to register for VAT? is it if your turnover is over £50,000?? take it small businesses dont qualify to claim back VAT unless they're successful??
cheers again!!
RE: RE: tax!!!! selling on ebay
James Smith | 07/09/2006 01:28 PM
No idea where you are getting your numbers from but VAT has ABSOLUTELY nothing to do with you if you are not a VAT registered business.
Your profits are simply the cash price you sell at, less the cash cost it was to buy.
Vat is irrelevant. You must NOT charge VAT on your sales if you are not registered, so I don’t know why you have included VAT in your computations. If you are charging it at present then you have real problems and need to speak urgently to an accountant about what to do.
Any business can chose to register for VAT, the compulsory threshold is a £61k turnover. It may be beneficial to register if for example you sell to other VAT registered businesses. If you are selling on ebay I assume this is private individuals and it wouldn’t normally be sensible to register.
If you are interested I explain VAT from the ground floor in my guide
"How to...Understand VAT. Strategies for Small Businesses"
http://www.jamesesmith.co.uk/ebooksvat.htm
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: RE: tax!!!! selling on ebay
ultimatehandymanLTD | 12/09/2006 07:18 AM
Originally posted by: james smith
Profits are computed as your sales value, less all your costs. Costs will include the costs of items you have sold, but not the value of stock you have on hand at the end of the period in which you draw up your accounts.
,
I'm pretty new to business myself, having only started a LTD company in July. I was wondering if you paid tax on stock that you hold! If you purchased a load of stock before the accounting period ends you would not pay tax on the money that you used to purchase the stock- is this correct, or have I got the wrong end of the stick?
Thanks in advance
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RE: RE: tax!!!! selling on ebay
James Smith | 12/09/2006 08:44 AM
Wrong end of stick im afraid.
The money you used to buy stock with won’t make any difference to your tax bill unless you make a really mess of the computation!
NB if you are running a limited company it is very important to know exactly what you are doing , especially with respect to separation of business/personal transactions and taking profits out of the company in a tax efficient manner. Unlike a sole trader you can’t backdate and "muddle through". For your own sake please get an accountant lined up able to explain what it is you should be doing all year rather than just when you need to file your accounts or you are likely to have a bit of a nightmare.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: tax!!!! selling on ebay
casper77 | 09/09/2006 07:48 PM
The key is whether you are selling chattels (i.e. you own used item) or in a trade, sell stuff in view of making a profit.
It looks like the latter, so you are liable to register with HMRC as as sole trader (unless you operate a Ltd). Technically, you need to register even if your profit will be < than your personalle allowance. How many occasional trade actually register is another matter...
RE: tax!!!! selling on ebay
snorkerz | 11/09/2006 11:06 PM
Just to add to JamesSmith s post, Here's another way of looking at it...
Assuming your supplier is VAT registered, you buy item A at 85p + VAT, total cost to you is £1.00
If you are VAT registered you claim back the 15p VAT
You sell item A for £2.00. If you are NOT Vat registered, that's it. If you are VAT registered you have 2 choices:
a) You add 17½% to the £2 (35p) and pay that to the VAT man. OR
b) You pay the VAT out of the £2 - ie sell for £1.70 + 30p Vat - and pay the 30p to the VAT man.
Of course, if you are VAT registered but your supplier isn't then you can't claim back the VAT because technically you haven't paid any even if the item still costs you £1.
That is the VAT element dealt with. In addition to that you will have to pay income tax at whatever your normal rate is. This is based on the years worth of transactions, but based on our example above it could be as follows:
IF VAT REGISTERED
Cost of goods 85p, eBay listing fee* 18p, paypal fees 20p other costs 20p. Total cost £1.43. Selling price £1.70. Profit 27p. Tax (@ 20%?) 5.2p
ALTERNATIVELY, if NOT registered
Cost of goods 1.00, eBay listing fee 20p, paypal fees 20p other costs 20p. Total cost £1.60. Selling price £2.00. Profit 40p. Tax (@ 20%?) 8p
Sorry Kezmark - this was intended to be a very simple explanation but I can see that I have gone on a bit. I'm not an accountant but if you'd like to ask any questions, feel free to PM me.
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RE: tax!!!! selling on ebay
platformone | 12/09/2006 01:02 PM
Have you ever thought of getting an accounts package that will calculate the VAT liability for you? Sage Start Up is very easy to use and is relatively inexpensive.
RE: RE: tax!!!! selling on ebay
ultimatehandymanLTD | 12/09/2006 01:21 PM
Thanks for the fast reply.
I have had an accountant for my personal taxation for several years but since starting the LTD company I had to find a chartered one, so I have an accountant but I don't go and see him until after the first years trading, for now I am saving all records of transactions and I will leave him to sort it out once the end of the acounting period is over.
I made my first mistake already by purchasing Quickbooks, it is not the best accounting software package in the world to be honest, so I have reverted to a spreadsheet in Excell.
Thanks again for the reply.
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