These days there are any number of ways to raise a little extra money thanks to the internet. These range from selling unwanted gifts or possessions you no longer need on the likes of eBay, renting out your property on a short-stay basis on Airbnb, allowing people to park on your driveway during the day or even renting out your garage or spare room on a self-storage basis.
You may already do one, some or all the things above or likely know somebody who does. If you do have an extra income stream from such activities it is important that you are aware of any potential tax liabilities and comply with them.
In the recent budget the Chancellor, George Osborne, made an announcement of particular relevant to people who do operate as above. He even has a term for you – a “micro-entrepreneur”. The provision Osborne outlined in his 2016 budget is that from next year you “micro-entrepreneurs” are entitled to earn up to £1,000 free of tax from selling on the likes of eBay and up to another £1,000 free of tax via renting out via the likes of Airbnb. Nice of him isn’t it? Handing you an opportunity to bag yourself £1,000 a year and you don’t have to hand any of it over to HMRC.
But that’s the crux of the matter. At what point do you cease to become a “micro-entrepreneur” and cross over in to trading as a business and everything which comes with that?
It’s not as straightforward as you may be thinking. That makes it important to consider things carefully and seek professional advice to keep you on the straight and narrow without any tax surprises later.
To try and put it in simple terms, if you are buying and selling on the internet on a similar basis to dear old Del Boy from Only Fools and Horses then you’re trading as a business. Full tax liabilities on your trading activities. But you already knew that didn’t you?
On the other hand, if you are a “micro-entrepreneur” and say renting out a spare room via Airbnb, the driveway to a poor commuter or selling casually on eBay then that first £1,000 is yours. You do however, have to declare anything over that and pay the appropriate tax on it.
To help you understand if you are “micro-entrepreneur” or a regular trader some factors to bear in mind are that, if you have bought goods with the intention of selling them on at a profit or you sell regularly then that is likely to make you a regular trader as is if you have registered on the likes of eBay as a business user.
On the other hand if you are selling off unwanted personal possessions, unwanted gifts, items you have inherited on an occasional ad hoc basis then that is most likely not going to push you in to trading territory as there is no buying and selling going on.
Even though the budget has presented you with an inviting opportunity to bring a little extra tax free funding in to the family coffers it is important that you establish what your status is if you may be going over the line from “micro-entrepreneur” to full-on business trading.
If in doubt, please contact us for advice.