When does selling stuff become “trading” for tax purposes? With increasing fuel and shopping bills, many people are selling things to raise cash, particularly using online websites such as e-bay. Whether the internet is used or not, if this constitutes trading, then there are various tax implications.

What is and isn’t trading?

Generally, if you sell a personal possession that you have owned for a while, but just don’t want any more, then you probably aren’t trading.

Conversely, if you deliberately buy things with the intention of selling them on in a short period of time, with a view to making a profit, then you are likely to be a self-employed trader.

Obviously these are very broad statements, and many situations will be somewhere in between these positions. The following are a list of factors (”badges of trade”) which may indicate that you are trading, but which may not be conclusive when each is considered alone.

Indicators of Trade

• A profit motive - if items are bought and sold specifically to generate a profit
• Frequent transactions - if you often sell the same items
• Short periods of ownership
• Supplementary work - if you do something to enhance the item before selling it
• If the asset is sold in commercial circumstances e.g. using channels typical of how that item is generally traded, as opposed to a sale needed to raise money. This factor may of course be of little use in determining trading status if an online auction site is used, as trade and non-trade sales take place on this.
• If money had to be borrowed to buy the asset, and the asset has to be sold to repay this.
• If the asset is purchased, then this is more likely to be trading than if the asset was acquired by gift or inheritance, but plenty of purchased assets are sold without giving rise to a trade.
• If the asset is the sort that would really only be traded by you (say, car parts when you don’t own a car), rather than something you could reasonably own and enjoy (such furniture or jewellery).
• If the asset, or sale, is similar to an existing trade you carry on e.g. sale of a property by a builder.

If you are still unsure whether you are trading, then consult an accountant. And remember, regardless of your conclusion, HM Revenue & Customs may view this differently! See our second article for the tax consequences of trading.

As with all our information in The Business Lounge, this is not comprehensive tax advice, and may not apply to your specific circumstances; to discuss how these issues affect you, contact your accountant.