Selling online? Make sure you keep clear records
More people are using online platforms to sell goods to make some money. There are different tax rules depending on whether you are trading, making some casual income, or just selling off unwanted personal items. But what if you are doing a mixture of activities? This article explains what type of sales are relevant for tax, and how keeping clear records can help you be more confident in understanding your tax position.
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Online platform sales
If you use an online platform to sell items, you might need to think about your tax position. We have a lot of useful information about online sales in our main guidance as well as a flowchart summarising the tax rules, but the general position is:
- If you are running a business with a view to making a profit, then that is considered trading income. In the context of selling goods, this may include buying in items to resell or making/improving things specifically to sell on for a profit. There are a number of indicators of trading which HMRC use, these are called ‘badges of trade’ and include the intention to make a profit and are explained in more detail on GOV.UK.
- If you receive income on a more casual basis this is sometimes called miscellaneous income. For example, this might include income from a hobby. This activity might not meet the ‘badges of trade’, but is still relevant for income tax.
- If you are selling unwanted personal possessions such as old toys or clothes, this would not be classed as trading or miscellaneous income, and there is usually no tax to pay. In some circumstances there may be capital gains tax when selling valuable items such as jewellery, this is covered in our flowchart.
The difference between trading income and miscellaneous income, as described in the first two bullet points above, is not always clear. This is especially true if you start your activity as a hobby without any real profit-seeking motive, and then start earning money from it more regularly. However, in both cases any income can be covered by the trading allowance, discussed below.
Complications with tax may arise if you are using the same online platforms to make sales related to a trade/miscellaneous income and to sell personal possessions.
Trading allowance
The trading allowance is a tax free allowance for trading and/or miscellaneous income of up to £1,000 per tax year. Our trading allowance page provides details on how this relief works and when you may want to use it, but in brief:
- If your total trading and/or miscellaneous income for the tax year is not more than the £1,000 trading allowance, you can claim ‘full relief’. In this case HMRC say that you do not need to register for self assessment and complete a tax return, unless you have another reason to do so.
- If your total trading and/or miscellaneous income is more than the trading allowance, HMRC say that you do need to register for self assessment and complete a tax return. However, you might still be able to use the trading allowance by claiming ‘partial relief’. This means you can deduct the £1,000 trading allowance instead of your actual business expenses.
Therefore, if you are using online platforms to make money, it may be beneficial to use either full relief or partial relief trading allowance, depending on the level of your sales.
As already mentioned, selling unwanted personal possessions is not trading or miscellaneous income, and so these sales do not need to be included when considering the £1,000 trading allowance threshold.
If you are using the same online platform to trade and to sell personal possessions, then you need to make sure you keep records of the different types of activities. This is shown in the example below.
Understanding the new OECD online platform reports
In January 2025 online platforms will start sending reports to HMRC for the 2024 calendar year for certain sellers. Online platforms users should also receive a copy of any information sent to HMRC about their platform earnings. You can read more about these reports and the criteria for sending them on our webpage, OECD rules.
If you receive a report from an online platform it is important to bear in mind:
- The report will be for the 2024 calendar year which covers part of two tax years (2023/24 and 2024/25). A tax year runs from 6 April to 5 April in the following year, so the 2023/24 tax year is from 6 April 2023 – 5 April 2024.
- The report will cover all transactions you have made through the online platform.
- If you use the same online platform for both trading/miscellaneous income sales and selling unwanted personal items, these will be shown combined together on the report.
HMRC plan to use the reports and other information to identify online platform users who may need to complete a tax return and possibly pay tax. However, it may be the case that even if you receive a report, you did not need to register for self assessment, perhaps because some of the sales in your report are just personal items which are not relevant to your income tax position.
Keeping records
If you are doing a mixture of different sorts of sales using online platforms then it is a good idea to keep a basic record of the gross income for each type of activity as you go along. As shown in the examples above, keeping records will make it easier to identify:
- What sales are taxable
- What tax year those sales fall into
- Whether you can claim full relief trading allowance
- Whether you need to register for self assessment and complete a tax return.
It will also mean you can easily provide information about your sales to HMRC if requested. This is particularly important if HMRC receive an online platform report for you, under the new OECD rules mentioned above.
There is information on keeping business records on our website and detailed guidance if you have started trading in our self-employment guide and specifically on online trading.
