Date of issue: 12th May 2005

BEWARE OF 'TRADING' VIA INTERNET AUCTIONS

A firm of Birmingham chartered accountants is warning people who regularly sell items via Internet auction sites like eBay and QXL that their activities could be classed as 'trading' and that, consequently, they could face a tax investigation.

Clement Keys, Birmingham says the newly formed H M Revenue and Customs department - HMRC - is cracking down on Internet auction 'trading'. While individuals who sell surplus or personal items they no longer require are unlikely to be affected, people who regularly auction items could find they are considered to be trading unless they can prove otherwise.

If individuals do not declare the profits from this type of regular online sales activity on their annual tax self-assessment returns, they could face an investigation into their tax affairs. Clement Keys says the Revenue side of the HMRC will be interested in the trading activities, while Customs will look into the VAT implications.

If an individual's auction income - before listing costs, PayPal fees, etc, are deducted - exceeds £60,000, there is a statutory requirement to register for VAT. Failure to register at the correct time can carry a penalty of 5%-15% of the VAT arrears as well as the possibility of a 100% penalty where dishonesty is suspected.

Importantly, information built into Internet auction sites and designed primarily to reassure buyers makes it easy for HMRC to identify defaulting taxpayers.

Details such as the date the seller registered with the site, the number of transactions and feedback from purchasers, plus the facility to review what has been bought and sold and for how much, over the last three months, enable HMRC to build up a comprehensive picture of people who are trading.

Clement Keys, Birmingham says this development comes as no surprise because, prior to its merger with Customs and Excise, the Inland Revenue had asked eBay for details of sellers' transactions.

"Ignorance is no defence, but it is the VAT issue and the wider ramifications affecting regular sellers that is likely to cause most concern," says director of VAT services
Steven Simmonds.

"Once you are regarded as trading a whole host of consumer legislation comes into play, including the Distance Selling Regulations and the Trades Description Act, so anyone who regularly sells items via Internet auctions should seek professional advice from their chartered accountant and/or solicitor to clarify their position."