With online shopping becoming more and more popular, e-commerce and online business start ups are growing at a rapid rate. In fact, according to the Business Data Group, the UK’s e-commerce start-up sector is booming at levels not seen before.
Its research showed that in the week before the UK’s COVID-19 lockdown was announced, more than 500 e-commerce start-ups were formed. Five weeks later, that figure had risen exponentially to almost 1,300 e-commerce start-ups per week – around 800 more than the same week in 2019.
If you own an e-commerce business, or you’re thinking about starting one, then there are special rules and regulations for operating. Here, Zoe Gibbons, our partner and e-commerce specialist at the Orpington office, explains what you need to know about selling online.
Setting up as an online business is a great way to keep overheads to a minimum and benefit from flexible working arrangements. However, like any other business, an e-commerce business will be subject to paying taxes.
If you are self-employed, including as an online seller, then you’ll need to complete an annual self-assessment tax return to disclose any income and expenditure and submit it online to HM Revenue & Customs (HMRC).
However, there are some exceptions. For example, if you are selling items online and it is not part of a business activity, such as selling second-hand possessions on eBay, then you won’t need to pay tax. However, if you plan to do it regularly, this could count as a business even if you already have a job.
As of 2016, the Finance Act gave HMRC the authority to investigate selling sites of individuals who do not appear to be declaring income. This is assessed based on the following criteria:
If you’re hoping to make a small amount of money from selling online, then the good news is HMRC currently allows for £1,000 to be earned in sales before any tax is payable.
However, even if you’re selling online on platforms such as eBay, Depop and Gumtree, and you’re not a registered business, once you pass the £1,000 earnings threshold you may be liable for tax as a self-employed individual.
Depending on how your business is set up, the following taxes may apply:
It is recommended that you seek the advice of a professional accountant for any e-commerce business tax related matters.
In March 2020, HMRC introduced the Digital Services Tax – a 2% tax on the revenues of search engines, social media services and online marketplaces, which derive value from UK users. The majority of businesses affected by this tax are large multi-national enterprises, such as Amazon, Facebook and Google.
However, the UK Treasury is also investigating the options for introducing an online sales tax in response to the recent shift in shopping patterns and online consumer behaviour. Currently, it is considering a 2% online sales tax on e-commerce sellers and marketplaces.
This could mean that e-commerce businesses will need to pay 2% of tax on their online sales to UK customers.
If you sell goods online to customers who are overseas, then other considerations will apply. For example, your goods may require accompanying documentation and could be subject to customs duty and sales tax on arrival at their destination.
If you are in any doubt, then you should seek the assistance of a qualified accountant who has experience dealing with e-commerce businesses.
To discuss any of the information above, or to find out more about how Perrys can help you with your business, please get in touch.