D J Macaulay

UK tax alerts

September 2009

Tax and eBay
Tax planning reminder 2009-10
VAT and internet trading

Tax and eBay

Clearing out the attic and selling unwanted items on an online auction site such as e-bay can be a useful way of raising some extra cash – there are even television programmes dedicated to the subject! But what is the tax position on items you sell and other buying and selling you might undertake on e-bay?

As a general rule of thumb if you are just selling on unwanted personal items on an irregular basis you should have no problem arguing that these sales are tax free – however selling more regularly and in particular buying goods for resale (whether online or not) will move you into a trading activity which would be taxable.

The tax man will consider the following basic points when making his decision, are you trading or not?

1. Do you intend to make a profit?
2. Have you undertaken frequent and repeated transactions?
3. Do the goods involved only have value if sold on, or do they yield income or give enjoyment due to ownership?
4. Have you made a one-off transaction or does it form part of a regular pattern of buying and selling?
5. Were the goods sold repaired or improved prior to sale?
6. Were the goods sold in a way that indicates trading, or to raise cash in an emergency?
7. Was money borrowed to buy the goods? Were any profits to be used to repay the loan?
8. Goods being traded are usually bought then sold quickly.
9. Goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.

If you are concerned that your e-Bay activities are drifting into a business activity there are consequences that need to be addressed and quickly. Capital gains tax as well as income tax and National Insurance matters may need to be considered.

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Tax planning reminder 2009-10

The ideas set out below will not always be appropriate and the best course of action will depend on your individual personal circumstances. They may require financial planning advice in addition to any tax advice. However, as we approach the second half of the tax year and as the 50% higher rate tax looms, now is a good time to plan.

Income above £150,000?

If your taxable income is above £150,000 your top rate of tax will be 50% from 6 April 2010. If it is at all possible it would make sense to invest for capital gains rather than interest. Capital gains tax is currently 18%. If we include the expected increases in National Insurance next year the expected rate of tax and NI on certain types of earned income will be 61.5%.

If you are married.

If one of you has unutilised personal allowances or basic rate tax bands it may make fiscal sense to transfer income producing assets from the higher rate taxpayer to the lower paid taxpayer – and of course there may be other factors to consider.

Inheritance tax – tax free annual gifts.

Each of us can give £250 a year to any number of recipients, as well as £3,000 annually over and above that. We can also make regular gifts out of our income (not capital) that should fall to be exempt.

Make or re-make your will.

Now may be a good time to reconsider past inheritance tax planning and in particular review your will. If you still have no will this should be addressed as a matter of some urgency.

Losses

Due to the difficult trading conditions of the past year many businesses are sitting on trading losses. Now would be a good time to quantify the possible extent of these losses and plan accordingly. It is still possible to carry losses back three years and recover tax already paid in those earlier years.

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VAT and internet trading

It often helps when considering the VAT implications of buying and selling goods via the internet, to consider what is actually being supplied to the customer.

We have listed below some of the issues you will need to consider:

1. Selling goods to EU non-registered VAT customers. If you sell to this group and the goods you sell are VAT able, you simply charge UK VAT as usual. But beware! If the value of sales to a particular EU country exceeds their “distance selling limit” (either 30,000 or 100,000 euro’s) you may need to register your business for VAT in that country.
2. Selling services to EU non-registered VAT customers. If you sell services to EU non-business customers the distance selling rules do not apply. Sales of services are effectively zero rated to all customers outside the EU and to EU business customers. Services in this context include a license to use computer software, sale of copyright (inc. photographic images), and telephone services. If you need a full list please call.
3. Selling books electronically. Ordinarily sales of printed books are zero rated. If a book is sold in electronic format it is treated as a supply of services, not goods and is therefore a VAT standard rated supply.
4. Receiving or selling newsletters. If you buy or sell a printed newsletter the supply is generally zero rated. If you send the same newsletter in electronic format it converts to a standard rated supply.

The above notes do not cover all situations. If you are involved in the purchase or sale of goods or services to non-UK customers and would like more information please call.