Selling stuff online and through more traditional means can constitute trading, as we discuss in our first article on this. Here we look at the tax implications of trading.

Tax implications of trading

If you are trading, then you will have to pay income tax and national insurance on the profits of your trade. In the first instance, within 3 months of beginning to trade, you need to register with HM Revenue & Customs. Visit their special website to do this online, and for further information on what to do next.

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VAT

If you are trading, and the items you trade are “taxable supplies” - products or services on which VAT should be charged - then it may be necessary for you to register for VAT. However, this is generally only mandatory if your turnover (the income from your sales) is more than £67,000 per year. The consequence of VAT-registration is that you must then charge VAT on all your sales, although you may be able to recover all or part of the VAT that you have paid on your purchases.

What if you are not trading?

If you are not trading, you may still have to pay capital gains tax if you sell an asset personally. However, there are many exemptions, for example, if the items are worth (and cost) less than £6k. As an individual, you can also make gains of up to £9,600 in the current tax year (2008/09) without having to pay any capital gains tax.

What to do next?

If you think you are trading, or have any doubts about this, you should speak to your accountant. Trading, and particularly trading online, can easily become complicated, not least when selling overseas, or if the goods you sell are not in the UK. Therefore, seeking professional tax, VAT and legal advice for your particular circumstances, is vital.

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.