Pictured above: Mike Tuhme
With HM Revenue and Customs (HMRC) announcing a crackdown on
individuals trading on the internet, RSM Tenon's Nottingham office
is offering advice to people regularly using auction sites to buy
and sell goods.
A recent survey carried out on the RSM Tenon website showed that
one in four people use auction sites to buy and sell goods, while
nearly ten per cent of the 723 people that took part in the poll
confirmed that they use these sites frequently.
Individuals who sell off their own goods will not be considered
trading - the likelihood is that they will not be actually making a
profit and HMRC has made it clear that these individuals will not
be targeted by this campaign. However, individuals buying goods
with the intention of selling them on to make a profit are probably
going to be regarded as trading - whether this is done through a
online auction site or on market stall is irrelevant.
Whether or not you make a profit is not the only indicator of a
trade. There is no clear definition of what constitutes trading,
and HMRC considers a number of other factors. Individuals who use
auction sites on a regular basis should ask also themselves the
following questions:
• How frequent and/or similar are the transactions? regular
transactions which are similar in nature could point towards a
trade.
• Are the goods modified or changed between purchase and
sale? If you modify an item before selling it, then this
could be considered to be trading. A good example is if a buy a
car, put a new engine in it and make it more attractive before
re-selling.
• Are you buying in bulk? If you purchase a very
large number of goods in one transaction and then sell them the
same way, this could be considered trading if there is no
other justifiable reason to purchase such a large quantity of goods
at once.
• How long have you owned the goods? Goods purchased
and sold within a very short space of time could indicate trading.
• What is your motive? The way in which goods were
originally acquired is relevant. For instance, was the item a gift
or did the selling inherit it, and what is the reason for the sale
of the item? If someone inherits goods from a relative and then
sells them on, then it is unlikely that this would constitute
trading.
VAT might also be an issue. If a business is registered
for VAT all other business or trading activities run by the same
individual could possibly be caught.
Andrew Hubbard, the Nottingham-based chair of tax at RSM Tenon,
said:
'People using auction sites to sell unwanted items now and again
need not worry. But buying goods purely to sell will probably
result in HMRC regarding you as trading. As with many aspects of
tax this can be a difficult area and auction 'traders' need to be
sure that they will not fall foul.
'Our survey showed that nearly ten per cent of people said that
they used auction sites frequently to buy and sell goods, and these
individuals need to consider seeking advice from a tax adviser
before they become the subject of an investigation by HMRC.'
Mike Tuhme, the director of tax at RSM Tenon in Nottingham,
said:
'HMRC has new and sophisticated ways of tracking people who are
trading on internet auction sites. They know that people have been
using these sites to buy and sell large stocks of goods and banking
the proceeds in offshore bank accounts, and it is likely that these
traders will fall under HMRC investigation sooner rather than
later.'