By Helen Thornley, Tax Consultant, Armstrong Watson

Last updated at 21:36, Monday, 19 November 2012

Helen Thornley, tax consultant at Armstrong Watson

We understand that HMRC can use the internet for evidence of eBay traders who  are consistently selling goods on eBay.

And this activity is not necessarily restricted to eBay traders. What about car  boot sales, sales via classified ads? Which raises an interesting question - when  does a hobby become a trade, and more importantly, when do any surplus  funds become subject to tax?

Generally speaking if you are selling your own private possessions you will not  be trading. However you may be considered ‘in business’ if you habitually buy  and sell goods on eBay and/or at car boot events. The list that follows is based  on a list of criteria that HM Revenue & Customers uses when considering this  matter:

1. Did you intend to make a profit?

2. How many transactions are involved? - systematic and repeated
transactions support trade

3. What type of goods are involved? - are the goods only capable of being  turned to advantage by being sold? Or do they yield income, or give  enjoyment through pride of ownership?

4. Is there a clear pattern? - was this a one-off transaction or part of a  pattern that suggests trading?  

5. Have you altered the goods? - were the goods repaired, modified or improved to sell them more easily?

6. How was the sale carried out? - were the goods sold in a way that  indicates trading, or to raise cash in an emergency?

7. Where did the money come from to buy the goods? - was money  borrowed to buy the goods? Were any profits to be used to repay the
loan?

8. How long after purchase did you sell? - goods being traded are usually  bought then sold quickly.

9. How did you acquire the goods? - goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.

As you can see one or more of these cases could apply to most hobbies so it is  always advisable that you seek professional advice on your tax liabilities.

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First published at 23:43, Tuesday, 16 October 2012
Published by http://www.in-cumbria.com