Rules for online trading
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The growth of Internet trading sites such as ebay and Amazon has created a boom in online sales. Simon Wicks finds out what your responsibilities are if you are trading via the Internet
The ease with which you can start trading online means that what begins as a way of shifting unsold stock or making pin money can quickly become a main source of income. But sidestepping the traditional business start-up processes can be risky.
"Many people think 'I'm working from home, nobody will know what's happening'," says John Goodhead, London regional executive for the Institute of Business Advisers. "But HM Revenue & Customs (HMRC) will find out." In fact, HMRC is targeting e-traders with an online guide that advises them of their responsibilities. "You have to play by the rules," warns Goodhead. "If you buy goods to sell online, you have to set yourself up in business as if you were self-employed and advise HMRC within three months." Domestic taxes As a self-employed trader, you must fill out a self-assessment tax return. If your business has a turnover of more than £65,000, you have to register for VAT. Even if the goods you sell are second-hand, you must still charge VAT at a special rate. "Be upfront, be transparent," Goodhead advises. "And keep proper records - as long as you have a proper record of the transaction, you have nothing to fear. If you're running a business, you've got to have an audit trail." International trading The Internet opens up a global marketplace and as an online trader, you are likely to attract overseas customers. "When you are selling abroad, you have to be aware of the terms and conditions of sale in the country you're exporting to," warns Goodhead. "Ignorance is no excuse. If there's a dispute, for example, you must know whose law applies." When selling within the EU, you charge VAT at the UK rate, unless your buyer is also a VAT-registered business. You must also obtain commercial evidence that the goods have left the UK, such as a certificate from your freight forwarder (eg DHL). If your EU trade is greater than £260,000 per year, you must fill out a monthly Intrastat return for HMRC. This helps HMRC track the movement of goods in the EU. Selling outside the EU VAT is zero-rated outside the EU, as long as you can show proof of the shipment. You should advise the buyer that they may have to pay import duty and ask your freight forwarder to fill out an export declaration. "You have to declare what's contained in the package," states Goodhead. "You also have to indicate who you are, the fact you are a business, your address and arrangements for payment and delivery." If you sell regularly to overseas customers, research the rules or consult an expert - certain items require a licence, for example, such as food (including herbal remedies) and software. Stay informed Overall, it pays to keep abreast of the rules when trading online. "You've got to be aware of the law of buying and selling of goods," concludes Goodhead. "It's the same as if you were trading in any other way."
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