How to sell on eBay without paying tax: UK guide

ebay sellers tax

It is now required by law for eBay to report sellers’ information to HM Revenue and Customs – sparking fears that millions will have to cough up extra to the taxman.

But the online marketplace has stressed to users there isn’t a new “side hustle tax”, and the average person selling second-hand items won’t be stung.

So what has changed? Here, Telegraph Money explains everything you need to know about the new crackdown, and whether you need to pay tax on your sales.

• What are the new eBay tax rules?
• Do you need to declare eBay sales to HMRC?
• What happens if you don’t declare your eBay earnings?
• How to avoid paying tax on eBay sales
• What do eBay sellers need to do?
• FAQs

What are the new eBay tax rules?

When it comes to websites that allow you to sell your wares, British sites were already required to provide data to HMRC, but American web sellers did not.

This is where things have now changed, as the UK has signed up to a global effort run by the Organisation for Economic Cooperation and Development (OECD), which requires American platforms to collect and report information about any income made by their users.

This means sites such as eBay, Depop, Etsy and Vinted are also required by law to share sellers’ information with the authorities.

Rules about who needs to declare income through self assessment have not changed.

Chris Etherington, of accountancy firm RSM, said: “This is about putting the onus on digital platforms to share information with HMRC – there aren’t any changes for sellers.”

So-called “side hustles” have grown in popularity in recent years but people, intentionally or not, have been able to slip through the net and avoid tax.

It is hoped the new rules will make it easier for HMRC to target sellers who have so far been trading under the radar.

HMRC, which is investing £37m into the project and employing 24 extra staff members, said the new initiative will “help us detect any deliberate non-compliance, ensuring a level playing field for all taxpayers”.

Do you need to declare eBay sales to HMRC?

It may be that your transaction data will be shared with HMRC automatically, but this will only happen when certain thresholds are met.

Those who complete 30 or more transactions per calendar year, or make more than €2,000 (£1,735) a year in sales will see their data shared with the taxman.

This therefore rules out a large number of eBay users who do not frequently use the site.

Victoria Todd, head of the Low Incomes Tax Reform Group (LITRG), explained: “The new rules have caused a great deal of confusion, but they simply mean that HMRC is receiving more information from online platforms than they were before.

“If you are following existing rules and declaring your income as required, then you don’t need to worry, or do anything differently.”

Trading allowance

Using the “trading allowance”, everyone can earn up to £1,000 in additional income not captured by the PAYE system each tax year. Anything which exceeds the tax-free threshold, needs to be reported to HMRC through self assessment.

This means you can earn anything below £1,000 from selling items without having to pay tax. Also, anything sold for less than its purchase price does not count as taxable income.

Ms Todd said: “People selling unwanted personal items such as their children’s old clothes or toys are not likely to be trading. Therefore, even if it is a significant amount, any money they make is generally not taxable.”

Meanwhile, those who earn additional income from property – such as renting out a driveway – can be covered by the £1,000 property allowance.

There are a number of tests, or “badges of trade”, that can be applied by HMRC to determine whether sales qualify as trading.

They are detailed as the following:

Mr Etherington said: “Perhaps for those who haven’t really appreciated what they’ve been doing is a taxable activity, this gives them more reason to review their affairs, get them in order and report them to HMRC if required.

“Sellers going above the trading allowance should already have been doing it – but undoubtedly there are people out there who don’t realise it’s a taxable activity.

“HMRC will now be getting the data, so if you haven’t been reporting it correctly, expect to hear from them.”

Capital gains tax

If you’re selling a valuable item – perhaps jewellery or fine art – for £6,000 or more, any profit you make could be subject to capital gains tax (CGT).

However, you’ll only pay CGT if the profit you make exceed the tax-free CGT allowance. The profit is the difference between the item’s value when you bought it and how much you sold it for. In 2024-25 this is £3,000. And even then, there are several ways you can (legally) avoid paying CGT, or at least reduce your bill.

This is likely to be quite rare for items being sold on eBay, but worth bearing in mind if you’re using the platform to sell valuable goods.

VAT

There’s a 20pc VAT charge on most goods and services in the UK, but you’ll only have to register to pay if you earn over £90,000 from self-employment (which can include eBay selling).

Once registered, you’ll need to submit a VAT return four times a year, and start charging VAT on what you sell. You will, however, be able to reclaim the VAT you pay as part of your business.

Expenses

If you have to pay tax on your eBay sales, you can also claim for expenses. If you owe income tax then you can claim for the things you had to pay for to make those sales. This could include things such as the cost of any thank you cards, stickers or other decorative packaging that you use when you make a sale.

If you sell an item that’s subject to CGT, you can take off expenses for things you’ve paid for that were necessary for the sale, such as if you had to get the item cleaned before it was ready to sell.

What happens if you don’t declare your eBay earnings?

As mentioned above, in some cases eBay will disclose your sales to HMRC, meaning that not declaring will not be an option.

You will still be responsible for making sure the details HMRC holds about you are correct, and making sure you detail your profits as part of a tax return if you need to submit one.

Failing to declare your eBay earnings in a bid to pay less tax than you owe will likely count as tax evasion in the eyes of HMRC, meaning you could receive any number of penalties from fines to court summons.

How to avoid paying tax on eBay sales

There are ways to organise your selling habits in order to avoid or minimise your tax bill. For one thing, you can try to make sure any sales you make stay below your tax-free allowances in each tax year.

The key thing is to be aware of your selling activity, and know that any money you make can form part of your taxable income.

When it come to paying income tax, the question of paying on eBay sales will depend on your other income – if the sales you make are your only form of income then you’ll be able to make up to £12,570 in 2024-25 before paying tax, as this is your personal allowance.

If you have other forms of income – a job or pension, for example – then it’s more likely you’ll need to pay tax on eBay sales if you exceed the £1,000 trading allowance.

While you might think that selling second-hand items and crafts online is a hobby, the taxman will class the activity as a business if it can prove you are doing “anything in the nature of trade”.

If you collect items and resell them in a short period of time, or sell home-made crafts online, you could be classed as a business.

HMRC’s guidance says: “Evidence that the sole object of acquiring an asset was to re-sell it at a profit, without any intention of holding it as an investment, is a pointer to the conclusion that a trade is being carried on.”

eBay has said that if you’re clearing out and selling your personal possessions, it means you are very unlikely to owe tax.

What do eBay sellers need to do?

New eBay sellers will be required to share tax information, which the company is then required to report to the Government. For individual consumer sellers, this will be their National Insurance number.

By January 1 next year, all existing individual sellers will also need to update their profiles to include a NI number for the same purpose.

For those selling on eBay, it told us it “remains” a site where users can “easily sell their items”.

A spokesman said: “eBay is working closely with our sellers to educate them on the changes, which won’t affect their existing tax obligations.

“We’ve launched online help and information pages outlining exactly what information we’ll need to collect, along with how their data is being robustly protected.”

Sellers will be notified by eBay if and when they cross the thresholds which require their details being shared with HMRC.

FAQs

What is the HMRC limit on eBay sales?

HMRC does not place a particular limit on eBay sales, but if you earn more than the £1,000 trading allowance then the money you make from the sales could be subject to income tax.

Does eBay report sellers to HMRC?

eBay doesn’t report sellers to HMRC, but it does share transactional data with the tax authority in certain circumstances. It does this when a seller completes 30 or more transactions per calendar year, or makes more than €2,000 (£1,735) a year in sales.

Do private sellers pay tax on eBay?

Private sellers can pay tax on the money they make from selling goods on eBay if the income they receive exceeds their tax-free allowances.

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