When Is a Business a Business?
This might sound like a stupid question, but try to answer it and you might realise that it’s a bit more complicated than you think.
You’re probably sitting there all smug thinking, “Obviously a business is anything that sells goods and services and makes a profit from it, right?” Sure, that makes sense, but what about this. You find an old box of stuff in a cupboard somewhere and inside are a couple of rare vinyls. You didn’t pay much for them when they were new, but now they are worth something, so you sell them on eBay. Do you have to declare that to the tax man and set yourself up as a business?
Fair enough, that’s an extreme example, but there is a grey area when it comes to people who casually sell stuff online and it is causing some trouble. Lots of people who are making a bit of money on the side have received letters saying that they should be paying business taxes on the profits. It therefore begs the question: when is a business a business and how do you stay on the right side of the law?
This one is a little tricky. The example I used above isn’t likely to get you in trouble with the taxman. Even though you would technically have made a profit, that was just stuff that was in the house anyway, and when you bought it you didn’t do so with the intention of selling for profit. The good news is, you are not going to get in trouble for clearing out old junk.
But that doesn’t mean you’re off the hook completely if you are selling second-hand stuff online. If you’ve bought the stuff and then sold it on in a short period, that counts as a reselling business and you’re eligible to pay taxes on it.
If you’re making something to sell, then you’re probably going to be considered a business. Even if it started out as a hobby, as soon as you start selling for a profit, that’s a business. The key thing to remember is the intention; if you buy or make something with the intention of selling it, you’re a business.
Now that you’ve established that you are, in fact a business owner, what next?
All businesses need to be registered through a company like yourcompanyformations.co.uk if they’re going to operate legally. When it comes to registering, you need to decide how you’re going to structure your business. In most cases, if you’re just selling online, you’ll be running it from home on your own. That means you register as a sole trader for tax purposes.
Do Your Tax Returns
Next, you need to start filing a tax return. Lots of people think that they don’t have to do so if they work and sell stuff part time, but you do. It’ll take into account the tax you should be paying on the income and, even if this is under the threshold for paying tax, you still need to declare it. If you miss the deadlines, you could get a fine.
The lines between business owner and civilian are getting more blurry by the day. Make sure you know which side of the line you are on.