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Internet trading - when is it a business?

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News & Publications: Internet trading - when is it a business?

Following the rise in internet trading through sites such as eBay, Gumtree and Amazon, HMRC has sought to clamp down on those who fail to pay tax on the profits arising from online selling.

HMRC's last campaign to target online sellers raised more than £9 million in tax, and recent reports have suggested that tax officials are once again stepping up their efforts to recoup unpaid tax.

If you sell unwanted personal items occasionally, whether through an internet auction site, classified advertisements or at a car boot sale, you will not be treated as trading for tax purposes. However, if your selling activities are more regular than this, you may be classified as 'in business' and therefore liable to tax.

Over the years, the courts have developed nine 'badges of trade' (see below), which can be used to help determine whether someone is carrying on a trade.

The nine 'badges of trade':
Profit seeking motive

An intention to make a profit - supports trading.

The number of transactions involved

Systematic and repeated transactions - supports trading.

The nature of the goods sold

Are the goods only capable of being turned to advantage by being sold? Or do they yield income, or give enjoyment through pride of ownership?

Existence of similar trading transactions

Was this a one-off transaction or part of a pattern that suggests trading?

Changes to the goods

Were the goods repaired, modified or improved to sell more easily?

The way the sale was carried out

Were the goods sold in a way that indicates trading, or to raise cash in an emergency?

The source of finance

Was money borrowed to buy the goods? Were any profits used to repay the loan?

Interval between purchase and sale

Goods being traded are usually bought then sold quickly.

Method of acquisition of the goods

Goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.

HMRC states that these 'badges' will not be present in every case, and that the presence or absence of a particular badge is unlikely, by itself, to provide a conclusive answer to the question of whether or not there is a trade.

We can review your selling activities to determine whether you are liable to tax. Should you be classified as in business, you will need to register with HMRC as self-employed. We can help with this process - please contact us for advice. For more information on trading online, please read our e-commerce Fact Sheet.