One man's nasty eBay VAT surprise for Christmas
It’s tempting, especially at this time of year, to turn to eBay for bargain presents or to make a quick buck. However, someone else also looks to eBay to make some easy money- and the taxman might even offer you a complimentary stay at Her Majesty’s pleasure.
We have previously wondered aloud about HMRC’s targeted campaign against eBay traders, and whether or not their methods are legitimate, the fact remains that if you are trading, you should be declaring your profits as income and paying income tax as appropriate. But what some traders may further overlook is the fact that if you make a large amount of sales, you may also be required to charge VAT.
The current turnover limit for VAT registration is £73,000, so if you have made this amount of sales (no, not profit) in the last 12 months, or expect to cross this threshold in the next 30 days, you should register for VAT. This means you need to add 20% to the selling price of your goods and pay it over to HMRC. If you do not register, then your selling price will be assumed to be VAT inclusive and they will still want their money.
Take the case of a ‘stay-at-home’ father from Croydon who was found guilty of avoiding more than £420,000 in VAT.
Instead of declaring his electrical goods sales to the VATman and adding on the 20% VAT, he was able to undercut his rivals because he “did not realise he was obliged to pay VAT on the goods he sold”.
In 2007, he was informed by his accountant that he should have been charging VAT and that he owed approximately £67,000, but instead of paying up, he foolishly continued until he was caught in December 2010.
Prosecutor David Hewitt said “It wasn't until 2007 that he realised he wasn't paying it properly. At that point he was in too deep and he realised he was stuck. He did try it legitimately but he couldn't make the system work because he couldn't make enough money.”
Sentencing him to 20 months in prison, Judge Anthony Leonard QC said: “Being aware of your obligations to pay VAT you carried out a thoroughly dishonest scheme to avoid paying VAT. You avoided £429,000 of VAT and because you were able to offer the goods at prices below those a trader paying VAT could you have prevented honest tax paying traders competing with you.”
Of course, we must assume that the majority of eBay sellers are already aware of their VAT obligations and that they are correctly accounting for VAT. However, for the less fiscally aware, news of this case may mean that your bargain goods become 20% more expensive. Alternatively, once these sellers take account of seller fees, Paypal fees and VAT, they may decide not to bother after all.