Q: I have started an e-bay business. As most of the stuff I buy is from eBay, I do not have any paperwork, receipts for purchases. What do I need to record for the tax man?
Feb 11 2007
Answered by: Clive Lewis Ask a question
You do not mention what goods or services are traded through e-bay. E-bay traders can opt for payment to be made through PayPal which would provide a basis for recording purchases. But as the option to trade through PayPal or by cheque, postal order, etc rests with the seller this is unlikely to give a complete record for you as the buyer.
You need to keep records of purchases and sales with as much supporting evidence as is possible to assist your returns to HM Revenue and Customs. A business bank account that records all payments and receipts is the usual starting point. You should also maintain a Cashbook that records all receipts and payments through the bank account giving further details such as payee and an analysis between the various headings such as for materials, motor expenses, stationery and drawings (money taken out of the business for your own personal use). Where your payments to suppliers or customer payments to you are made in cash a separate record should be kept which could just be a separate column of the Cashbook.
For a sample of the sort of information a basic business record keeping system should contain go to the businesslink website - click here.
At the end of the financial year the records will be used to prepare the annual accounts that will form the basis of your tax returns. If so, profits (or losses) will be taxed under Income Tax and National Insurance Contribution rules. At the end of the tax year (5th April) in which you commenced trading in your own business you must complete a Tax Return including a Self Employment section.
Basically, if your turnover (sales) is under £15,000 you only need to fill in figures for turnover, expenses and profits. If the turnover of the Ebay trading business is greater than £15,000, a detailed profit and loss and balance sheet will be required to help complete the Self Employed section of your tax return. So you will need to keep a record of the business’ income and expenses in order to produce a set of accounts. If you buy equipment you are allowed a proportion of the cost each year (called capital allowances) as a deduction from your profits for tax purposes.
If you are working from home a proportion of the house expenses might be allowable as will the costs of travelling related to you Ebay trading business. If your business annual turnover reaches £61,000 in a year (2006/7 limit) you must register for VAT. Failure to do so is a criminal offence.
Profits from the Ebay business will be added to any other income you received in the tax year to calculate your total taxable income. Tax on the Ebay trading business profits is payable in two instalments on 31 January and 31 July together with an adjustment of any balance owing the following 31 January. If your Income (including profits from the Ebay trading business) exceeds £5,035 tax is payable at 10% if it exceeds £7185 tax is liable at 22% and if it exceeds £38,335 (2006/7 rates) you will be liable to tax at 40%.
The basic National Insurance Contributions (NIC) is called Class 2 and for 2006/7 it is £2.10 per week usually paid by direct debit in 4 or 5 weekly instalments. But if your self employed earnings are less than £4,465 no Class 2 is payable. The additional NIC is called Class 4. On profits between £5,035 and £33,540 the Class 4 rate is 8% and on profits above £33,540 it is 1%. There are some exemptions from Class 2 and 4 NIC contributions for the self employed such as if you are over the state retirement age.
You have 3 months to notify HM Revenue and Customs (HMRC) if you start a new business. You can obtain a form CWF1 from the HMRC website or call the Self-employed Registration Helpline on 08459 15 45 15.
Comments