The start of the month saw a frenzy in the media and online about HMRC using new powers to target traders on sites such as Ebay.

Within days, there were online postings by people saying it was unfair that they would now be taxed on selling their children’s clothes whilst fighting the cost of living.

As ever with tax in the press, an analysis of the facts provides a different answer.

What has changed is a new statutory provision requiring trading sites to report each year to HMRC, details of how much the users have taken in receipts, where the total exceeds £300.  They are also required to inform the user that they have made such a disclosure.

There has been no change to the taxability of these receipts. Somebody selling second-hand clothes or used furniture, old phones etc previously used by family members, will not suddenly find they have a tax bill.

The key question is what are known as the Badges of Trade.   These are a variety of subjective texts to indicate the existence of a trade.  These include:-

• Is there an intention of achieving a profit?
• What are the frequencies of transactions (in some cases, one transaction can be a trade).
• Nature of asset being sold.
• How was the asset being sold obtained?
• Was funding used on acquisition?
• How long was the asset around before sale?

All of the above factors have to be looked out.  There is not a correct answer or a two out of six pass mark, it is taking all answers in the round.

Then in simple terms, if it is a trade, it is taxable, if it is not a trade, it probably isn’t.

This is the position which has existed since the dawn of Income Tax, the obligation of the platform providers to report to HMRC does not change the taxable status of the receipt.

The only change is that those people who have been trading on such sites have a high chance of being investigated if the income has not been declared.

We have seen many individuals who have already been investigated who have come to us and we have negotiated a settlement with HMRC.  Apart from the tax due, this settlement always includes interest and penalties.

The level of penalties can vary from 0% to 70% of the tax due, with most cases finishing between 10% and 30%.  To achieve the lower penalty, it is necessary for you to come clean to HMRC before they ask questions, something we always recommend.

So don’t panic about the new rules, unless you have not been declaring what you should ……..

 

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