Ebay Ecommerce tax amnesty. Advice needed please!!

[davyboy]

Hi.
Hoping somebody can help me. I have been trading online for around 7 years & am embarrassed to say it is all undeclared earnings. I'd estimate I've made a profit of around £120,000 over this period from a turnover of around £500,000. What started as a means of selling unwanted goods somehow escalated into a full scale business & I'm at my wits end.
Obviously I need to get things on track & have no idea how to go about it, as I've read HMRC are about to launch a tax amnesty on Ecommerce this spring but are also currently investigating this area of the economy.
Can anybody advise me on the first things I should do to start the ball rolling, or should I wait until the amnesty is announced in the hope of getting a reduced penalty?
I have very little by way of records, so the above figures are rough estimates, but almost all of my sales were through Paypal & my bank/credit accounts & I'd obviously be prepared to give HMRC access to these.
I wouldn't say I'm feeling suicidal yet, but am extremely anxious!!
P.S.
I also work full time, earning around £27,000 p.a. & pay tax through PAYE.

[Generix]

Ok so profit of 120k over 7 years is roughly 17k a year, @20% is about £3.5k tax bill a year. although I guess it wouldn't be so constant, which might work out ok in terms of interest charges. But if some years push you into the higher tax bracket then it could be a bigger bill.

Also turnover of c£500k over 7 years is around 70k a year - so potentially you should have been VAT registered also, this might turn out to be the bigger bill of the two, as I'm gonna hazard a guess you are selling to private individuals and are buying from people who aren't charging you VAT, or you haven't any VAT invoices etc for your purchases...which means, no VAT back on purchases, 15/17.5/20% VAT needs to be stripped from your turnover (not profit).

Perhaps plead that you aren't really a business man, and you don't read/write or understand all this fangdangled technology or taxes etc you might get off based on the Harry Redknapp precedent?

[scottie2]

Hi there-my professional advice would be to make a managed voluntary disclosure to HMRC of your situation and business-i am presuming that you have not been approached by HMRC- and do this immediately. By doing so you will benefit from greatly reduced penalties and as opposed to much higher penalties if HMRC find out about you from their own enquiries. Engage a tax enquiry specialist who has experience of dealing with HMRC and it should be possible to reconstitute your accounts with the information you have and introducing reasonable estimates in the absence of documentary evidence. The "amnesty" for this sector may be launched shortly but if you wait for this you are risking being found out by HMRC in the interim. Either way, if you make an unprompted disclosure now, you will not lose out as the terms of these amnesties will be no better than what you will receive-in terms of penalty-I appreciate this will be a worry but things could get a lot worse for you if HMRC catch up with you. Have helped loads of clients make such disclosures and thereby alleviating further stress and worry.

If you need any more advice, get in touch. All the best manoj.anand@wlhtax.co.uk

[mr_c]

I would be very grateful for any advice you can offer on my personal situation. Like many people I started selling personal possessions on ebay but this has increased in scale over recent years and I’m now concerned about the position.

Around 2.5 years ago I started restoring vintage electronic equipment as a hobby, initially buying old items and then repairing/refurbishing these for my own enjoyment. This became fairly addictive and I soon acquired more items along with various spare parts and other materials involved in the restoration. As I acquired a better example of a particular model for my collection I then sold the previous version of that model, and obviously priced these at the going rate for the items (normally around £35) to reflect the materials and the work which I’d put into the restoration. This sometimes meant that I was buying and selling items within a short timespan – in retrospect (and reading the HMRC guidance) I can see that this fits their definition of trading. (Whilst the item which I sold one day may not have been physically the same item which I bought a week or two earlier, this wouldn’t be obvious to someone looking at this objectively now as they would have the same model number, colour etc, so ostensibly could appear to be the ‘same’ item bought at one price and then sold at a higher price).

In more recent months I have drastically scaled down my collection, selling off literally hundreds of fully restored items, along with a large quantity of spare parts (a combination of new and used parts which can be difficult to get hold of due to the age of the items – so I’d taken the opportunity to buy a large amount of these while I could from personal sellers and also a nearby specialist shop which was closing down). Over the last 2.5 years this has equated to several hundred items, and the ‘profit’ on this has probably been £3-4,000 although this would be extremely hard for me to work out now.

All of the items have been sold through an ebay account; these items were largely acquired through a second ebay account, and in some cases bought from junk shops or as cash transactions from other collectors.

On hearing of the e-Marketplace campaign yesterday I phoned HMRC to seek advice, but they weren’t particularly helpful and kept referring me to their website, which doesn’t cater for what I see as a grey area. Although I can see that it could easily be viewed as trading, I also take the view that it was a hobby activity (albeit a slightly obsessive one) and that I was motivated by personal enjoyment from restoring the items and having a collection of these, rotating the items in my collection as I found better or more unusual examples and eventually disposing of the majority of these items (as I needed to free up the money for house repairs).

Having sold off these items, my ebay activity has returned to the normal state of selling a small number of low value personal possessions every few weeks.

Naturally I am anxious about the position – I see several options:

Option 1: Do nothing, and hope that HMRC do not investigate as they have bigger fish to fry. (Obviously they are not revealing whether they are gathering information purely through their ‘web robots’ or by a direct feed from ebay/paypal, and the volume of sales may not be sufficient for them to take an interest - but I have no way of knowing).

Option 2: Complete a notification/declaration under the eMarketplace campaign. Try to work out how much profit I have gained and pay tax on this. As a higher rate tax payer, all of this would fall into the 40% band (plus their 10% penalty if they agree that this was unintentional, so effectively 44%). This is money I don’t have in hand – it’s all been spent on household repairs and other essentials!

Option 3: My wife completes a notification/declaration under the eMarketplace campaign. As she has not been in employment during this period, I think everything would fall within her personal allowance and so no tax would actually be due. (Although the ebay and paypal accounts are in my name, the paypal is linked to our joint bank account/joint credit card and we have always used these jointly and can show there are other sales and purchases of household items). Although the majority of the work buying and restoring the items was carried out by me, she has done some of this with me.

Option 4: Write to HMRC and explain the position fully. Although they wouldn’t take a position on the phone yesterday, I assume that if I put this in writing then they would have to respond and provide their view?

Very grateful for any advice you can offer, as I’m currently very worried about being faced with a large tax bill due to not fully thinking through the implications of this earlier.

[Generix]

Mr C - to me it sounds much more of a hobby resulting in some income rather than a business/trade.

Not my area of expertise though, but on the face of it I wouldn't be worried if I was in your circumstances.

HMRC are very much trying to target those who are trading on a much bigger scale and especially those purposely avoiding detection;

It is not uncommon now for ebay traders to terminate their accounts as they reach the VAT turnover threshold, then they create a new account and start again so they don't appear on the HMRC threshold checks. I assume the other taxes then work off the back of those people picked up on the VAT threshold checks.

[Bridge96]

Have you contacted an accountant yet to make a voluntary disclosure to HMRC?

The e-Market's disclosure Facility opportunity closed on the 14 June 2012 - if you didn't take part I would advise that you should make a voluntary disclosure asap to HMRC for undeclared earnings, that way you can save a tax investigation and get reduced tax penalties.

Rather than contacting HMRC directly you should get advice from an accountant or tax professional first, they may even be able to make the voluntary disclosure for you. Don't panic but it is best to come clean rather than wait in worry for the tax man to find you

_______________________________________________________________
http://www.kinsellatax.co.uk

[Incredulum]

As I acquired a better example of a particular model for my collection I then sold the previous version of that model, and obviously priced these at the going rate for the items (normally around £35) to reflect the materials and the work which I’d put into the restoration.

This looks like a perfectly normal collector's activity.

This sometimes meant that I was buying and selling items within a short timespan – in retrospect (and reading the HMRC guidance) I can see that this fits their definition of trading. (Whilst the item which I sold one day may not have been physically the same item which I bought a week or two earlier, this wouldn’t be obvious to someone looking at this objectively now as they would have the same model number, colour etc, so ostensibly could appear to be the ‘same’ item bought at one price and then sold at a higher price).

But you WEREN'T buying and selling the same item in short timespan. They were merely different items that were of the same type, but to an expert eye clearly the one you sold was not so good an example as the one you bought.

I'm not convinced you are trading; instead that you were engaging in normal activity of a collector, all sales being subject to CGT (and there is no CGT on things [chattels only, not shares] that sell for less than £6,000 per item.)

Likewise, just because you got bored of your collection within 2-3 years of starting doesn't mean you were trading. You have presumably completely stopped dealing in these items.


Of course, if you were really trading, then that's a different matter.