Thousands of online sellers who use websites such as eBay, Etsy, Amazon and Gumtree are the focus of fresh attempts by HM Revenue & Customs to crack down on tax evasion, Telegraph Money has disclosed.

Such websites are being forced to hand over customer account details, including their selling activity, as part of the Revenue’s legal powers that were extended last year.
This type of information gathering has enabled the taxman to target 14,000 individuals it suspects of failing to declare profits on their self-assessment tax returns, the Revenue confirmed.

Using extensive new powers introduced last year, HMRC can download people’s account information and even force sellers to pay tax that is disputed or subject to an inquiry.

The Revenue raised more than £9m in tax as a result of the earlier campaign, with one eBayer who turned over an undeclared £1.4m in six years handed a two year prison sentence. John Woolfenden failed to pay almost £300,000 in tax on his DVD and games business, in a high-profile case designed to put off would-be evaders.

People who register their account as a “business seller” on websites such as eBay or Amazon are among the likely targets. The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns. Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.

Some of those targeted make as little as £100 profit online, Telegraph Money has learnt. However small, any earnings above an individual’s tax-free personal allowance – £10,600 for the 2015‑16 tax year – are taxable if the money made is considered a business profit.
In one letter seen by Telegraph Money, received in April, an eBay user is told: “HMRC receives information about fees paid by you from the e‑marketplaces you use and is aware you were registered as a business seller. HMRC thinks you should have declared more on your tax returns than you did.”

There are several traits that mark you out as a business in the eyes of the taxman, known as the “badges of trade”, listed below. Just one of these could be enough to show that you are trading.

If you are concerned about your own circumstances, please get in touch. 

The nine ‘badges of trade’

  1. Is your primary motive to earn a profit? If HMRC thinks you intended to make money, rather than selling items for fun, your selling activity is considered to be a business.
  2. The number of transactions matter. If you repeat very similar transactions in a short period of time, this might be considered a badge of trade.
  3. What type and quantity of goods are you selling? Are you buying so many that you profit from an economy of scale? Did they yield an income while they were in your possession? To demonstrate that your selling activity is a hobby, you may need to prove the goods gave you “pride of possession”, for example, a picture for personal enjoyment.
  4. If your online transactions are similar to an existing type of business, such as a clothing retailer or specialist collectables seller, this may be used by HMRC as evidence that you are trading.
  5. If you modify items before selling them, again this is a badge of trade. Ask yourself: do you repair, alter or improve items to make them more saleable and, therefore, achieve a greater profit?
  6. How did you carry out the sale? If you sold an item in the same way as a shop or auction house – where customers agree to buy something at a fixed price – you could be classed as a business. This is known as an “undisputed trade”.
  7. If you borrowed money to buy an item, especially if this loan could be repaid only by selling the items again, this is evidence of trade.
  8. The period of time between when you bought the item and sold it again will be looked at by HMRC. Any assets that are the subject of trade will normally, but not always, be sold quickly. This suggests that you only bought an item with the intention of selling it. By contrast, an asset that you bought with the intention of owning it, but then decided to sell after a period of time is much less likely to be suspect.
  9. How did you acquire the item? If you received something as a gift, or an inheritance, you’re far less likely to be seen to be running a business when you go on to sell.

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