Yahoo Finance Thousands of UK-based eBay business sellers face paying 20% VAT on fees
Thousands of UK “cottage businesses” operating on eBay now face paying 20% VAT on fees following a company shake-up.
Sellers using the online marketplace are now contracted to the UK-registered business rather than the Luxembourg-based entity.
It means that, effect from August 1, British sellers must pay VAT on fees incurred on transactions through the site.
MORE: The 20 best companies for work-life balance, according to their employees
Those already VAT registered will see no additional cost, as they will be able to claim a tax credit. But those who are not registered for VAT will be hit.
Alan Pearce, VAT partner at accountants Blick Rothenberg, said: “This change should not adversely affect the vast majority of VAT registered sellers as the additional VAT being charged by eBay should be recoverable via the seller’s VAT returns.
“However, non-VAT registered businesses (i.e. those legitimately trading under the current £85,000 taxable turnover threshold) and those registered under the flat rate scheme will have to suffer the extra VAT going forward.
“Those who choose to register voluntarily will also have the benefit of being able to claim back the VAT paid on fees.”
He added: “In the past, many unregistered sellers gave false VAT numbers or simply used somebody else’s VAT number to avoid eBay charging VAT. This illegal practice will now cease as VAT will be charged to all UK sellers (registered or unregistered) and only those genuinely registered will be able to recover the VAT.
“Private individuals who sell on eBay should not be affected by this change as they should already have been paying VAT on fees in the past and will continue to do so in the future.”
MORE: One in five buy-to-let investors plan to sell up
The impact is likely to be most keenly felt by micro-businesses, those turning over £40,000-£60,000 a year.
Someone bringing in £40,000, for example, will have to pay 10% fees, or £4,000, but will now also have to find 20% VAT on that – an additional £800.
The change follows last year’s package of measures introduced by Chancellor Philip Hammond aimed at tackling the rapidly growing VAT evasion by overseas traders that sell goods in the UK via online marketplaces such as eBay, Amazon and others.
As a result, HMRC was given the power to force online marketplaces to ensure that their overseas customers were registered and accounting for VAT or risk being liable for the VAT themselves.
MORE: Inflation set to rise once more piling pressure on UK’s cash-strapped households
Pearce added: “So far, according to HMRC, over 7,000 new ‘internet traders’ applied for VAT registration in 2016, compared with just 700 in the previous year, suggesting that the new powers are having a significant effect.
“It is expected that these new measures will secure a much-needed additional £875m of VAT revenue by 2021.”
A spokesperson for eBay said: “We’d recommend all business sellers to consult their tax advisers to find out how VAT applies to their eBay businesses.”
