eBay is a truly global brand, with hundreds of millions of users around the world either using the service to buy goods, or to sell literally anything online.
Given the ease with which you can sell goods via eBay, the attraction to potential entrepreneurs is obvious. The start up and running costs are minimal, and you can easily run your business if you still have a regular job.
However, despite how appealing setting up an eBay business may be, you need to be aware of your legal obligations – particularly when it comes to registering for, and paying tax on your profits.
A large proportion of eBay sellers are likely to be unaware of their legal obligations. This is particularly the case with those eBay sellers who begin by selling odds and ends, but later start trading more substantially.
Some questions you may ask include; at what point should you register your new business activity with HMRC (whether it be as a sole trader or via a limited company)? Do you need any permits to sell goods on eBay?
Sunil Parekh from PJT Accountants, provided this helpful checklist for people thinking of starting an eBay business, or using it frequently to sell goods.
Also try our guide to creating a successful eBay business from scratch.
Things you should DO when starting an eBay business:
1. Set up accounts at wholesalers, preferably a credit account. This way you buy from the wholesaler, sell it on eBay, get paid and then pay the wholesaler 30 days later.
2. Open an account with eBay and get their free listing tool for your adverts.
3. Open a Paypal account, or another online banking account so you can take payment via credit card (this will open up worldwide trade).
4. Within three months you must contact HMRC and tell them you are starting a business. You have two options here: Either form a limited company or inform them that you are becoming self employed. Either choice will mean differences to your VAT and class of NI. If you go for a limited company, and you employ staff then there are employer laws to be considered such as minimum pay, holidays etc
5. Look for deductions that can offset income for example: Equipment Purchases, Business Expenses, Motor Expenses, Meal and Entertainment Expenses, Travel Expenses etc
6. Keep good records of everything that is bought and sold. This will also help in keeping track of orders.
7. Invest in an accounting software package that will help with tax, payroll and other business accounting requirements. FreeAgent could be the ideal package.
Things you should NOT do when starting an eBay business:
1. Never mix your eBay business account with your personal spending.
2. Do not assume eBay will track or report taxes for its sellers. It’s your responsibility to make sure you comply with government regulations.
3. Don’t use the cash method of accounting. As a business with inventory, you will need to use the accrual basis method of accounting. This means income and expenses are recorded as they occur, regardless of whether cash actually changes hands. A sale is entered into the books when the invoice is generated, not when the cash is collected. An expense occurs when materials are ordered.
4. Don’t ignore licenses and permits. For example, if you plan to sell food over the net you WILL need to abide by health and hygiene regulations.
5. Don’t misrepresent what you are selling. According to the Sales of Goods Act if you misrepresent goods you are liable for a whole range of penalties.
6. Don’t bury your head in the sand. If you have an increase of income it is your responsibility to put on the tax. If you expect your income to exceed £73,000 (from 1/4/2011; previously £70,000) you must also register for VAT.
7. Don’t think that you can avoid paying VAT if you are selling internationally. VAT applies if you are selling goods throughout the EU. It is also likely that you will have to get an export permit and register with the Customs and Excise for international trading.
This article contains contributions from Simon Smith, General Manager, MYOB