Going up for sale online is a great option for small businesses, especially in the aftermath of Covid-19. However, like with offline businesses, you have to pay taxes on your business. We'll walk you through the taxes you may need to pay as an online seller so you can set up an e-commerce business while respecting the law.
Do I have to pay taxes if I sell my products and services on the internet?
If you are self-employed you will need to register with HMRC and complete an annual self-assessment declaration regardless of your activity including being an online seller.
However, you can sell online from time to time without it actually being a commercial activity - for example, you make a few one-off sales on sites like eBay to get rid of goods that you don't need or want anymore, or to raise emergency funds. In this case, you do not have to pay tax as a self-employed person.
How much can you sell before you have to pay taxes?
As of 2017, you can make up to £ 1,000 in online sales before you have to pay taxes.
This doesn't just apply to eBay, but other online shopping platforms like Gumtree, Depop, or Etsy.
In 2016, the finance law empowered the HMRC to investigate online sellers to crack down on those who evade tax. If HMRC classifies you as an online seller then you will have to pay tax on your income.
New online sales tax
The government is currently considering implementing a new 2% sales tax for online sellers.
The objective is to give physical stores a boost by giving them a slight price advantage in order to help them relaunch their activity following the closures linked to health measures to fight against Covid-19.
Another idea that the government is considering is to charge customers of e-commerce sites extra for delivering products online.
These measures can be introduced by spring 2021.
What other taxes may I have to pay as an online seller?
Depending on the configuration of your business, the taxes you may have to pay are:
- Income tax
- Corporation tax
- Social contributions
- PAYE from employers
- Business rate
The amount of this tax depends on your employment income, self-employed profits, including for online sales, rental income, trust income but also certain state benefits, pensions you can collect and interest on your savings.
A certain amount of income tax relief is available and you do not have to pay it on the first £ 1,000 of your self-employed income (called a “business allowance”).
You will have to pay this tax on the profits of your business if it is a public limited company, a foreign company with a branch or office in the UK or a club, cooperative or the like. unincorporated association
You won't receive an invoice for this tax, so it's up to you to remember and take care of it.
If your business sells products and services, you are used to charging your customers VAT. You then pay any VAT due to HMRC and submit the VAT returns. If your turnover is over £ 85,000, you should register for VAT immediately.
The normal VAT rate is 20%, however, some products and services have reduced rates or are exempt.
If you have employees, you must pay the PAYE bill which includes employee income tax deductions, Class 1 and 1B national insurance, student loan repayments, Construction Industry Program (CIS) deductions, and apprenticeship tax payments.
If you local for your business, like store, office, pub, warehouse etc. you will probably have to pay professional rates.
You will also need to take this into account if you are using part of a building for non-domestic purposes.
If you want to start an online sales activity, do not hesitate to be accompanied by as accountant specializing in e-commerce to anticipate all the costs associated with your activity and estimate the possible benefits.