The second-hand online clothing market has boomed in recent years, with the likes of Vinted, eBay, Gumtree and Etsy giving users their own ‘shop window’ in which they can display and sell their wares to others, with just the click of a few buttons on their phones.
Recent press reports may have caused some concern for many who use these platforms to sell their old or unwanted items, warning that those sellers may now have an obligation to the taxman.
It should be understood that there have been no changes to the tax rules in relation to the sale of second-hand items – the only change has been that of HMRC announcing that the resale platforms will now have to share information of certain sellers with them.
The sellers who will have their details passed on to HMRC will be those who have sold 30 or more items on any given platform, where those proceeds have generated proceeds of 2,000 Euros (around £1,700) or more in a 12-month period on a single platform.
Even if their details are passed on to HMRC, it will by no means result in those individuals owing the taxman.
As to whether those sellers will have a tax liability, that will depend on whether they are deemed to be undertaking an activity which is ‘trading’ in nature – and, even then, for a tax liability to arise, the individual needs to be generating a profit (meaning selling items for more than they have bought them for) before any tax might be due.
Provided the taxpayer can show that they weren’t undertaking a trading activity, that should be the end of the matter.
To determine whether someone is trading, HMRC will look to the so called ‘badges of trade’, which consider a number of tests, including whether somebody has bought items with a view to selling them and realising a profit. They will also consider the number of individual sales (i.e. repetition) that a seller makes in any given year and whether or not the item has had personal use.
Even if someone is trading, and generating profits, there are still allowances which might reduce or even eliminate any tax liability (including the £12,570 personal allowance and the £1,000 annual ‘trading allowance’).
Typically, clothes will not appreciate in value and therefore it’s unlikely if the items have been bought new, worn for a few years, and then sold, that they will have gone up in value and generated a profit. However, it is possible that certain one off, high value items, (for example a luxury watch or a luxury handbag), could go up in value, generating a profit. A single transaction might not generate a trading receipt; however the gain could potentially be subject to capital gains tax in the sellers hands. However, there are exemptions that might cover any gain, and there are special rules relating to moveable items called ‘chattels’ which might exempt them from CGT altogether in any event.
Get in touch
If you are worried that you might be trading and therefore have an obligation to report, or if you are worried that you might have to pay tax to HMRC on an item that has gone up in value, please get in touch by emailing enquiries@pmm.co.uk.
