What is eBay?
eBay is the UK's largest online marketplace, boasting more than ten million customers and three million items for sale at any given time. The site has £170m users worldwide, bidding for a vast array of goods and services ranging from the sublime to the ridiculous and covering all points in between. In the UK, 10,000 businesses are operated under the eBay umbrella.
How does it work?
If you want to start selling online, you can register a sellers' account as an individual, or open an eBay shop. The latter option is only appropriate if you expect to be regularly selling in quantity. In exchange for paying lower listing rates, you pay a monthly fee. To begin trading, you simply open an account by providing standard subscription information such as your name, address and credit card details.
Why start a shop?
Opening an eBay shop is a simple option if you want to run a business without incurring overheads such as rent and rates. An increasing number of people in the UK have discovered their entrepreneurial streak and earn a living or supplement their income by buying stock wholesale and re-selling it for a profit online. Other sellers, such as antique dealers and collectors, have turned their interest or hobby into a business.
eBay claims that sellers see an average 25% increase in sales the three months after opening an eBay Shop and save on listing fees. Having a storefront also gives you credibility and enables you to display all your goods in one place, rather than having to scatter items across hundreds of different categories. An added benefit is that you get your own search engine with your shop and you don't have to relist goods that don't sell.
The allure of operating a business on eBay is the lack of overheads. However, in return for the access to an international customer base eBay gives you there are costs. You need an internet connection - broadband will make your life easier. Typical costs could range from around £12 to £30 a month depending on your provider. You may need to think about storage premises if you are selling in bulk.
Basic listing fees start at 15p for items with a starting or reserve price of up to 99p and rise to £3. Additional promotional features such as photo galleries cost more. Final value fees are also charged. These charges start at 5.25% of the final value of your item. If you don't sell, there is no final value charge. Click here for full pricing details.
When you set up an online shop under the eBay umbrella, you pay a monthly subscription fee. The fee varies according to the level of shop you operate. The most basic shop costs £6 a month. Higher levels of shop offer greater exposure for your products and cost more (£30 and £600 a month) accordingly.
When you list items in your shop you still have to pay an insertion fee. Sellers pay a small listing fee to auction their item for a number of days (usually seven); buyers can then bid as many times at they wish. The winning bidder then sends payment to the seller, and the seller sends the item to the buyer.
Starting your business
As with any new enterprise, there are a number of basic steps you must take when you are setting up. You must inform the Inland Revenue of your self-employed status within three months of starting to trade. The Inland Revenue's website has everything you need to know about becoming self-employed. Depending on the size of your business, you should either register as a sole trader or form a limited company. Both options have implications for VAT and National Insurance contributions. The main benefit is the limited debt liability bestowed upon the company's officers and shareholders. For more on becoming a limited company.
If you are working with wholesalers you need to set up credit accounts with them. This will enable you to buy goods and pay for them after you have sold them on. Payment terms are usually 30 days. You may also want to set up a payment account for eBay buyers to pay you. This can be done through eBay's own service Paypal (www.paypal.com) or Worldpay (www.worldpay.com).
Once you are up and running, you must keep detailed records of your income and outgoings, as well as receipts. The IR requires that you keep these records for five years from the end of the tax year they relate to.
When you sell an item, you can stipulate payment by a number of methods: credit or debit card, Paypal (the eBay-owned payment clearing service) and cheque or postal order. Every bid is a legal contract, which means that once a seller has won the item they are required to pay for it. As seller, you must send the item if you take payment.
If you make a profit selling goods that you own, you are liable for capital gains tax. The allowance is £8,500 profit in each tax year. If you are self-employed as a sole trader and operate as an eBay trader, all sales must be included in your annual accounts.
If you are not a sole trader, whether you are liable for tax depends on the quantity of goods you sell. If you sell personal items on a one-off basis, it is unlikely that you would be classed as an eBay trader.
However, if you buy goods wholesale, then sell them on eBay for profit, you are likely to be classed as a trader and are therefore liable to pay tax on your profit. If you are in any doubt about your tax liability, you must contact the Inland Revenue as soon as possible for clarification - otherwise, you could end up owing the taxman a chunk of your eBay gains.
The Revenue is becoming increasingly aware of eBay businesses that do not declare tax. Most businesses do not declare tax through ignorance rather than fraud. The taxman is targeting eBay sellers with a large number of 'feedback' comments - suggesting a high volume of sales - to see how much profit is being made.
If you are regularly selling high-ticket items on eBay, you should discuss your tax liability with HM Customs & Excise as soon as possible.
What you can't sell
Although the variety of goods on sale on eBay is near limitless, there are some things that you can't sell. You cannot sell:
Animals and wildlife products
Catalogue and URL sales
Counterfeit currency and stamps
Counterfeit and trademarked items
Drugs and drug paraphernalia
Embargoed items and prohibited countries
Firearms and ammunition
Government IDs, licences and uniforms
Human parts and remains
Mailing lists and personal information
Prescription drugs and materials