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Dear Friends,
How are you handling VAT for eBay taxes?
I'm struggling to understand how eBay accounts for VAT on antiques, especially in the UK, when selling items to China, the USA, or EU countries.
I am an eBay seller. If it's not too much trouble, I would like your advice or guidance.
Do you have to use the standard (do you pay £1000 sold eBay price + 20% VAT, charging eBay buyer) or (within £1000 sold, so you have to pay 20% VAT within the £1000, so it's not as much as the previous option, but all from your own pocket) or margin scheme (£1000 sold eBay - you paid for item £400 deductive = £600 + 20% VAT) accounting for VAT on eBay? What accounting software is good to use (Quickbooks & A2X)?
Does eBay do some VAT reports you can use as proof of VAT return?
How do you prove to the HMRC that you bought something at the Antique fair? For example, you buy something for £100 and sell it for £250 later.
Sorry to trouble you with these questions, but I would rather ask you because you are the most qualified in this field, and it's very hard to find the correct answers. This trade is very specific to handling our sourcing and documenting for HMRC.
You may have some answers or advice, which I would deeply appreciate.
I have my accountant, but I wonder if he knows all aspects of this trade.
Kind regards and happy Father's Day
Otto
First of all, I am a little foggy on the details myself so make sure to speak to an accountant about all of this. I am not at the VAT threshold myself either so I do not have personal experience with this.
The VAT threshold can be quite a heavy anchor for UK sellers.. If you are to do VAT without any schemes, my understanding is that you take the 20 percent from the sale price so £200 from £1000. Though I am not certain whether you minus the 20 percent on the amount after selling fees are removed or before. Theoretically this is counter balanced by reclaiming VAT credit on other business costs, the trouble being that you cannot claim VAT credit on stock purchased. Maybe you can claim back some VAT on things like packaging materials.
On the margin scheme you match the cost of the item with its sale and minus the 20% on the profit for that individual item. The trouble with this is that you have to match purchases to sales which can be particularly fiddly at times (group lots for examples). One of the benefits of doing straight forward VAT is that you do not have to match purchases to sales, everything is incomings and outgoings.
One thing people do to protect against the extra burden of VAT is create a company and then carefully plan how money is withdrawn from the company (strategically paid out as dividends or a wage? I have even heard of people buying a house as a company asset which seems a bit 'artistic' with the reality).
Recently the UK government introduced the VAT Flat Rate Scheme which has a threshold up to £150,000 (instead of the standard £90,000) where you can do standard cash basis accounting whilst paying a fixed rate of VAT. I think the antiques rate might be 7.5% (under 'Retailing that is not listed elsewhere').
Buying stock at markets is a grey area as I understand it. Technically you cannot claim an expense that you do not have a receipt for. If HMRC were to audit you in regards to this I think you are at their mercy to some extent. It might come down to some kind of debate over whether the stated cost of your stock seems over inflated or reasonable. I would just keep personal and honest records and proceed, if you can get some receipts that will probably be good to have.
Ultimately crossing into VAT presents extra challenges with bookkeeping and more tax paid. To mitigate this you can create a company, though this also presents further complexities. Unfortunately if you want to turnover more than £90,000 it is something you have to contend with.
I'm struggling to understand how eBay accounts for VAT on antiques, especially in the UK, when selling items to China, the USA, or EU countries.
One important point on this I forgot to mention. I am not sure, but I think it might be possible that sales to China for example are VAT zero rated. So if you turnover more than £90,000 selling to China you may have to register for VAT but you would not have to pay VAT on those sales.
https://www.gov.uk/guidance/vat-exports-dispatches-and-supplying-goods-abroad
Dear A Forest,
I want to thank you for your insightful input on the tax dilemma. Your suggestion of opting for a long-term viable scheme resonates with me, and I appreciate your perspective.
As I actively gather information and await input from my accountant, I find myself eager to gain a deeper understanding of how companies like Migularry operate in the UK.
I'm confident that with time and effort, I will navigate through this challenge successfully. This experience serves as an exciting opportunity for growth and learning.
Your message has encouraged me to approach this situation with a more strategic mindset, either finding solutions or uncovering new, thought-provoking questions.
Thank you once again for your valuable input, and I wish you a wonderful day.
Best regards,
Otto
Dear Otto,
That is no problem at all. It is an issue I have pondered for years. I have gotten close to the threshold before, but after seeing what was necessary to exist above it I shied away. A lot of people will go through it without doubts. With a certain preparedness and boldness it can be taken on. Without being prepared it can become a bit of a mess.
Speaking about accounting generally, I feel the sooner you can automate as much as possible of it the better. Making tax digital is going to be mandatory for everyone within the next few years. If you can remove the need for manual input and delegate to an accountant there is less chance for problems (one of the issues with having to match stock purchases to sales is the need for manual input, whereas cash in/cash out can be easily automated with something like quickbooks).
Incidentally, VAT was introduced to the UK in 1973 as a replacement for the Purchase Tax as a result of joining the EEC (probably in part to offset the loss of tax revenue from import taxes). When the UK left the EU, some people hoped that the UK would abolish VAT but that has not happened yet. Though it is possible that they might alter/replace it in the future. It has been an issue for antiques dealers and other small business since it was introduced (a lot of which would prefer to simply buy/sell items and pay tax on the profit, rather than contend with over-complicated bookkeeping and company structures).
Best wishes
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