Selling Second Hand Items on the Internet
Q: Due to the current economic climate, I have been looking for ways to supplement my income and have sold a number of old second hand items on internet auction sites and classified adverts. I’ve read an article which suggests I may have to pay tax on the money I receive in this way. Is this correct?
A: If you are just selling some unwanted items that have been lying around in the attic and your home the answer is probably no, as in order to pay tax on the goods you sell, you either have to be trading or make a capital gain.
You are likely to be treated as trading if HMRC consider you to be purchasing or making goods for resale with the intention of making a profit or if you are selling goods for third parties and receive commission on the sales.
If you only sell occasional, unwanted personal items through internet auctions, car boot sales and classified advertisements then it is unlikely they will view you as being self-employed. This is due to the fact that in most cases where you sell second hand goods, the amount you receive rarely exceeds the original price you paid for them and as tax is only chargeable on the profits made, no tax would be chargeable.
Likewise, capital gains tax is only charged on gains you made on the sale of certain assets and therefore if you sell an item for less than you purchased it for, you will not make a gain and no capital gains tax will be payable. You only have to pay tax if the items you sell have increased in value during the time you have owned them. The items you sell are likely to be personal effects or goods, known as chattels, which are individually worth less than £6,000 when you dispose of them. Such items are exempt from capital gains tax and it is therefore very unlikely you will make a gain that is chargeable to tax.
If you are concerned that your situation may be considered to be trading, you should discuss this with your local TaxAssist Accountant, as there is a late registration penalty if you do not advise HMRC within 3 months of commencing a new trade.
Notifying HMRC of Missing Income
Q: I recently filed my tax return for the year ended 5 April 2009 and noticed some dividends I received were not shown on last year’s tax return. As I am a higher rate tax payer I should have paid an additional amount of tax on these amounts. How should I let HMRC know of my error?
A: Just as HM Revenue & Customs has the right to repair an obvious error or mistake on a return, you also have the right to amend it within 12 months of the original filing date. If you have not detailed a source of income on the return, you are obligated to let HMRC know of the error.
The amendment may be in the form of a letter or you can submit an amended return showing the additional income in the correct box or supplementary page. If the error relates to a tax return which was filed more than 12 months ago, then you have to make an “Error and Mistake” claim by including the details in a letter. You cannot just send in an amended tax return.
You should advise HMRC as soon as you realise your mistake and try to pay the additional tax due as quickly as possible, as interest and surcharges will be due on the amount you have underpaid.
Interest will be applied on a daily basis at the rate in force at the time the tax was originally due, so if you missed the income off the 2008 tax return then you will have interest applied from 1 February 2009 until the day HMRC receive your payment. A surcharge of 5% will also be applied on the underpaid amount on 28th February 2009 and 31st August 2009.
Corporate Gym Membership
Q: My employer has offered to pay for a corporate gym membership for me for 2010, but will I be taxed on the cost of the membership?
A: If your employer provides you with access to sporting or recreational facilities (or vouchers that are exchangeable for their use), providing certain conditions are met the cost met by your employer is tax free.
The conditions are that the facilities are available for use by all of the firm's employees and the facilities aren’t available to the general public. In addition the facilities must be used mainly by employees or former employees, or by members of employees’ families and households.
The facilities don’t have to be used exclusively by your firm's employees – so if your employer jointly offers the facility with another firm and their employees use the facilities too, the membership is still tax free.
The cost of the membership is not tax free where the facilities are open to the public, or based at a private residence or holiday accommodation, or where the membership provides you with use of a vehicle (which includes boats and aircraft).
In most cases employers secure preferential rates at public gym facilities, rather than offering to meet the full cost of the membership, as the provision of the membership will be a taxable benefit. If they pay your membership, you are then liable to pay tax on the full cost of providing you (and members of your family or household where appropriate) with the use of the facilities in question.
Lloyd Stubbs specialises in managing tax and accountancy affairs for small business owners and can be contacted by phone or email
Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.