By Emma Wilson, Partner
The new year is often the perfect time for a clear-out and selling personal items can be a great way to declutter and earn some extra money.
However, many people may be unsure about whether selling personal items online could result in further tax liabilities.
I know I am regularly asked by contacts and friends about the implications of selling personal items online via platforms such as eBay, Facebook Marketplace and Vinted (to name just a few).
With HMRC increasing its focus on online marketplaces, you must understand if your sales exceed the set tax-free allowances for online trading.
The difference between selling personal items and trading
For most people, selling your own personal possessions online will not be not taxable (unless it is particularly high value) and it is unlikely you will need to pay Income Tax, Capital Gains Tax or register with HMRC.
However, these requirements will change if HMRC considers your selling activity to be trading.
You may be classed as a trader if you regularly buy items with the intention of selling them for a profit or if you make items to sell.
Even if your trading started as a hobby, it could be treated as a trading income and be eligible for taxation.
What are the tax allowances for selling?
The Trading and Miscellaneous Income Allowance gives you up to £1,000 of gross trading income tax-free every tax year.
If your total trading income is below this amount, you do not need to declare it or file a Self Assessment tax return.
If you sell an individual item or a set of items for more than £6,000, you may also need to pay Capital Gains Tax.
This is a tax paid on the gains, or more commonly referred to as profits, of an item that is sold that exceeds this threshold.
All individuals are entitled to a personal allowance which means you can earn up to £12,750 per year before paying Income Tax, but you must declare your income first.
When do you need to pay tax?
If your new year hobby or clear out profits go over the £1,000 allowance, you must register for Self Assessment as a sole trader and submit a tax return, even if you pay Income Tax through employment.
Self Assessment tax returns must be filed online by 31 January 2026 following the end of the tax year and must be paid by the same date.
However, they can be filed anytime after the end of the tax year and early filing will allow you to better manage your tax bill.
HMRC have a free online checker tool to confirm whether you need to report your additional income.
HMRC also now requires online marketplaces to collect and report seller information.
As of January 2024, online selling platforms are required to share seller income data with HMRC, making undeclared income more likely to be identified.
With the January Self Assessment deadline fast approaching, you must seek financial advice to keep your finances compliant and avoid any costly repercussions in the new year.
How can we help you?
For many people, the current economy has put a strain on their finances and any opportunity to earn some extra money is appreciated.
When selling any possessions, you must clearly record and keep track of any sales to ensure you do not surpass the £1,000 tax threshold.
Our expert team can help assess your finances and if you exceed the threshold, register and calculate your tax efficiently.
We can help you avoid any Self Assessment penalties and stop your clear-out from becoming an unexpected tax bill.
If you need help filing your tax return, speak to our team today!