eBay trading and VAT
The goods and services supplied by your business will be either taxable or exempt for VAT purposes. If they are taxable, you must register for VAT once your sales have reached the current VAT threshold.
Second-hand goods and antiques
Because many secondhand goods, antiques, cars and collectables are bought from or sold to private individuals who are not registered for VAT, a special scheme has been put in place. Under this scheme VAT is due on the difference between what you pay for the goods and what you sell the goods for, instead of on the full value of the goods sold. This difference is referred to as the 'margin'.
For example, if you buy an item for £50 and sell it for £75 the margin is £25 (figures included for illustrative purposes only). To work out the VAT due, multiply the margin by the current VAT fraction. At the moment the fraction is 1/6.
£25 x 1/6 = £4.17 VAT due
To use this scheme you must comply with certain conditions, which are set out in VAT Notice 718 The VAT Margin Scheme and global accounting and VAT Notice 718/1 The VAT Margin Scheme on second-hand cars and other vehicles. These are available on the Gov.uk website.
You can reclaim the VAT you are charged on business expenditure as 'input tax'. (There is no input tax to reclaim on goods bought for resale under the Margin Scheme.)
If you are registered for VAT you will have to charge VAT on the full value of any new goods you sell - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'. There are two main rates of VAT:
- standard rate (currently 20%)
- zero rate (0%)
Some goods are special cases when it comes to VAT. Books and children's clothes, for example, are zero rated. A number of guidance publications, including VAT Leaflet 701/10 Zero-rating of books and other forms of printed matter and VAT Notice 714 Zero Rating Young Children's Clothing and Footwear are available on the Gov.uk website.
For the purposes of VAT, the term 'export' refers to goods supplied to countries outside the European Community. Special VAT treatment applies to goods exported from the UK - these are usually zero rated. More information is included in VAT Notice 703 VAT: Export of goods from the United Kingdom which is also available on the Gov.uk website.
Paying the VAT
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- the 'output tax' due - either on Margin Scheme sales or on the full selling price of items if you do not use the Margin Scheme, and
- the input tax you have paid
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
VAT matters can be quite complicated and you should consult the VAT Helpline on 0300 200 3700 if you need any further guidance and you can also download VAT Notice 700/1 Should I be Registered for VAT? from the Gov.uk website.
The Helpline will also be able to advise you on using one of the Retail Schemes. These schemes are used by businesses which deal mainly with members of the public.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733 Flat Rate Scheme for Small Businesses. It will help you to decide whether or not the scheme is suitable for you.
Working out how much VAT
Your market research will have helped you to estimate your sales income every month. Now you will have to decide what proportion of those sales might be of standard rated items so that you can estimate approximately how much VAT you will pay every quarter.
VAT on sellers fees
If you're VAT registered, you can register your VAT ID with eBay and apply for an exemption from paying VAT on your selling fees. You can find out more on the eBay VAT information page.