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Tax and your Legal Obligations When Trading on eBay

By: Dave Howell - Updated: 17 Sep 2010 | comments*Discuss
Ebay Taxes Tax Inland Revenue Business

When you open your ebay business you have to consider the tax you have to pay and also the other legal obligations you must comply with. Many people that start in business using ebay believe that they don’t have to pay tax, or inform the Inland Revenue. This is simply not true. Your ebay business is a legitimate form of income whether this is full or part-time. As such the Inland Revenue must be informed. The legislation and regulations that apply to small businesses equally apply to your ebay store.

Self-employment Status

The first thing you need to do when you open your ebay store is to register as self-employed. The Inland Revenue must be informed within three months of your ebay store opening or you could face a fine. Even if you are going to operate your ebay business part-time, you still need to inform the Inland Revenue. There is a handy guide you can download from their website ‘Working for yourself: The Guide’ that gives you full details. Contact the Inland Revenue on 08459 15 4655 for more details.

Tax and your ebay Store

Running your ebay business will mean you have to take care of your own tax affairs. This is also the case if you are operating your ebay business part-time and still have an income as an employed person. Hiring an accountant to help you with your business finances is money well spent. The taxes you need to consider include:

Income Tax

The self-assessment tax system is now well established. After you have registered your new ebay business with the Inland Revenue, you will receive information about the self-assessment tax form you must complete each year. You can either complete the paper form, or fill in your form online. It’s also a good idea to get an accountant to help you as they have detailed knowledge of the tax system, can file your forms for you at the appropriate time, and calculate the amount of tax you owe.

National Insurance

As a self-employed person - even if this is part-time - you may have to pay extra National Insurance contributions. Generally, all self-employed people pay Class 2 and Class 4 contributions. If you expect your income from your ebay business to be very low, you can apply for an exemption from Class 2 contributions. This is called the Small Earnings Exception. Consult your accountant about this, and see the Inland Revenue’s website for more details.


Your ebay business may have to pay VAT on the goods its sells if the income your business will earn is over the VAT threshold that is currently £67,000 a year. Keep an eye on how much your ebay business is earning as you must register within a month of going over the VAT threshold and start to collect VAT from your customers. Taxes like VAT can be complex, which is where an accountant and detailed accounts records can come in very handy indeed.

Corporation Tax

If you set-up your ebay business as a limited company, your business will have to pay Corporation Tax. The amount your ebay business has to pay is based on how much profit it makes. You are responsible for working these payments out, so again an accountant and accurate accounts records can be a great help to ensure your calculation are accurate and your ebay business doesn’t pay too much in taxes. A good system of accounts is essential to help you operate your ebay business successfully.

Your Legal Obligations

Just like any other business your ebay store has to comply with whatever regulations or legislation impacts on the goods or services your ebay store sells. Some of the main regulatory areas you ebay business may have to consider include:

Employing People
If you intend to employ people to help you run your ebay business you must comply with all the employment law that currently exists. This includes health and safety issues, minimum wage and payroll. You can obtain all the information you need about how to comply with all the relevant employment law from the Inland Revenue. They also have a New Employer Helpline on 0845 607 0143.

Selling Foodstuffs
One of the most closely regulated areas of business is the sale of foodstuffs. If your ebay business will sell any kind of food, it is imperative your business complies with all the current food regulations. You can get detailed information from the Food Standards Agency website.

Distance Selling Regulations
As your ebay business will be selling goods to customers via the Internet, your business will come under the Distance Selling regulations. These are a set of rules that layout the legislation that impacts upon online businesses and also gives guidance on how your website should be constructed to support its customers. You can download a detailed guide to the Distance Selling Regulations from the Office of Fair Trading website: www.oft.gov.uk/shared_oft/business_leaflets/general/oft698.pdf.

Trades Descriptions
Goods and services that your ebay business sells must comply with trading standards regulations. In essence this simply means that the goods that you are selling can perform the task they are designed to. You can read detailed information about the trades descriptions regulations on the Trading Standards website.

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