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Do I Have to Pay Taxes on Reselling Items?

The never-ending discussion about taxes and online selling seems to be worrying and confusing many resellers. So what is the correct information? Do I have to pay taxes on reselling items or not? Fortunately, resellers can now get the right information right here. Find out what type of reseller has to disclose their income from online selling platforms such as Shopify or Depop and how a crossposting tool can assist in the entire process.

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Our small guide on taxes for resellers will enable you to up your online reselling game

So, Let’s Answer the Question - Do I Have to Pay Taxes on Reselling Items?

So, do resellers pay sales tax? Let's answer this important question. Actually, it boils down to how serious about reselling you are. Certain factors determine whether you are a successful e-commerce owner or just a casual seller on the Internet. The Finance Act provided the HMRC with authority to determine what type of sellers are obliged to disclose their earnings. If some of the following aspects relate to you as well, taxes on reselling items will need to be paid: 

  • There is an intention of the reseller to turn a profit and not to resell for fun,
  • The reseller repeats similar transactions over short periods,
  • Funds are borrowed for buying items that will be sold and then the money is repaid,
  • Being unable to prove that the items you sold provided you with a "pride of possession" before being listed,
  • Similar to retailers, the products are sold for a set price,
  • There is a short window of time between buying and selling which raises the concern about the reseller's ownership,
  • Modifying goods and services to increase their reselling price.

Therefore, if you are not affected by the factors above, you won't be obliged to file a tax report, but other top resellers with e-commerce businesses will be. Bear in mind that if you want to start an e-commerce business this year, gather more information about your obligations as a reseller.

How Much Can You Earn in Sales Before You Have to Pay a Tax?

HM Revenue & Customs does not need any sellers who are reselling their used clothes over the Internet just for fun to be taxed. If your personal earnings are truly small, taxation won't be an issue. Therefore, in 2017 the UK came up with a trading allowance. An online store is allowed to earn £1,000 before being taxed.

However, those resellers on eBay, Depop, and Etsy earning thousands of pounds will be subjected to taxes as sole traders. For a long time, people have been offering their goods and services without disclosing their earnings, so now this community needs to be regulated.

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Before you decide to sell on an online marketplace platform, figure out your obligations

Whether You’re Reselling on eBay or Depop You Need to File Taxes - Here’s an Example of What Happens if You Don’t

When resellers are seriously irresponsible, they can end up serving prison time. Schemes cannot be concealed for long since HMRC can access PayPal details and research all about the online stores on multiple platforms. However, more commonly, when resellers fail to submit their tax return, they will suffer a huge fine. 

But avoiding HMRC penalties is very easy in this day and age. You can simply fill out a tax returns form on their website and settle all taxes you owe for the entire year.

Woman selling hats online
Do you sell on Depop, Etsy, or eBay successfully? Then, you'll owe taxes 

What Sales Tax Will UK E-commerce Business Owners Have to File When They Sell Their Products?

The taxes you will encounter as an e-commerce business owner will depend on how you have set up your company. Check out the list below of different types of taxes:

  • VAT (if you earn over £85,000),
  • Corporation Tax,
  • National Insurance,
  • Income Tax (if you earn over £1,000).

Online Business Owners Generally Have to Submit Corporation Tax

If you own an e-commerce business selling second-hand products, you will be obliged to submit Corporation Tax Return to HMRC annually. The current corporation tax rate is 19%. Previously, your personal earnings were exempt from UK tax if the company was based abroad but had a presence online in the UK. However, as of the April 2020 rule change, every non-resident business is required to settle this type of tax.

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HMRC requires all online sellers to submit their Corporation Tax

What Is VAT (Value Added Tax)?

Online resellers are generally subjected to a 20% VAT charge. However, some goods and services, such as energy and health, are charged at just 5%, while children's clothing and publishing are charged no VAT at all. Although you can register for VAT at any time, we strongly advise you to do so as soon as your business's annual revenue exceeds £85,000.

What Is Income Tax?

In the UK, resellers are generally required to submit income tax on their profits, just like any other individual or business that earns income. If the online reseller is operating as a self-employed individual, they will need to report their income and expenses on a self-assessment tax return. Then, income tax on their profits must be paid.

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If you operate as a self-employed individual, you will be subjected to income tax

Do You Need to Pay National Insurance?

National Insurance contributions guarantee state benefits such as a state pension. The amount of contributions that need to be paid depends on various factors such as your employment status, business type, and whether there are any employees in your company. If you operate as a sole employee and director of a limited company, you must settle Class 1 National Insurance contributions via the PAYE payroll.

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Earning from online marketplace platforms means you be paying National Insurance

Use Online Selling Tools If You Want to Be a Top Reseller

Starting an online store is a challenging and serious process. However, if you'd like to become a full-time reseller and register your business with the HMRC, you will need to earn enough to make a profit when all taxes are settled each year. 

The only way to have a growing and successful e-commerce company is by investing in a cross-posting app. The benefit of using software for selling online is that you can connect the best online selling platforms and reach a wider audience

You can start small, without any money, but quickly find yourself sourcing second-hand clothing from various sources. Then, you can use cross-posting software to get the listings noticed immediately. This is going to be profitable, and the charges won't take away too much from your personal earnings.

Here is a video that will help you learn more about how one of the best cross-listing software works.

Don’t Hesitate Any Longer - With Zipsale, You Will Have an Easier Time Keeping a Record of Your Sales

When it comes to paying taxes and avoiding any penalties, it's important to keep an accurate record of all sales you've made throughout the year. When you are crossposting your listings, this can be a bit tough. But, if you register with Zipsale, you will have an opportunity to have a clear inventory of everything you've sold and everything that needs to be sold. We guarantee that with the help of this useful multichannel listing software, any online business will grow. 

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