Tax investigation and e-trading  

As increasing numbers of individuals take up e-trading to bring in an income, how will HMRC deal with the resulting tax issues?

Until recently, the status of those earning an income through e-trading was pretty ambiguous. Is Mrs Smith, who clears out her house and then sells everything through an online auction site an e-trader? What about the guy who buys a whole range of discounted golf equipment and then re-sells it online in the evening, in addition to his full-time job? How does HMRC keep track of someone who buys items for fifty pence at a car boot sale and sells them online for a profit, or the pensioner who makes her own cards at home and makes a little extra on top of her pension from e-trading?

When does a little extra cash become an income?

The difficulty with e-trading comes in the definition of income, and when that income becomes taxable. If you are using auction sites to generate income by buying and selling goods or services, you should really be registered as self-employed or as a business. This means that you will have to pay tax and National Insurance contributions and declare all your income to HMRC; but it may also mean you can claim allowable expenses, such as the use of your computer and broadband line for your business, and the purchase of postage and packaging materials, use of home as an office and some business travel costs.

eBay and tax investigation

With its leading market position and phenomenal growth, eBay cannot be seen to be encouraging traders to make an income which isn’t disclosed to HMRC. In fact, it needs to show that it is actively encouraging traders to register as a business, in order to avoid being tarnished with the brush of tax evasion. eBay has created a separate area for those e-traders who have decided to set up a business, along with a range of information and links to help new businesses ensure that they meet all the legal and financial requirements. What’s more difficult to police, however, is those traders who earn a good income from sites like eBay without declaring their earnings to HMRC. As with all taxes the burden is on the taxpayer to inform HMRC of their earnings – ignorance will not be accepted as a good excuse by any tax investigation officer.

Avoiding an e-trading tax investigation

If you don’t want to become the subject of an HMRC tax investigation, but you think that your e-income may take you into the taxable income bracket, then you need to get some advice. If you approach HMRC with the intention of making a full disclosure about your current e-trading income and your plans for future earnings, you may be able to avoid a hefty penalty for tax evasion. As experienced tax specialists, we can help you to disclose any tax evasion to HMRC. We can assist with the preparation of accounts, tax returns and papers to send to HMRC and help to bring your tax affairs up to date.

If you have received notice from HMRC of a tax investigation or Civil Investigation of Fraud proceedings, call us for help and advice today. All enquiries are strictly confidential, so phone 0800 734 3333 or e-mail scott.gilbert@gilberttax.co.uk now

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