Any individual in the UK who plans to sell his products through an online medium needs to know that HMRC allows it. However, there are a few limits to this process of selling products online and sales tax for the online seller. This limitation is set due to the breaching boundaries for the individuals who tend to disobey rules and regulations. This practice is more likely inclined towards not disclosing online income while the sellers are submitting their tax returns. HMRC ensures to make you aware of the tax you owe when you are making profits by selling your products online.
If you are still unsure of where you stand in terms of online income and profit earned from it, it can be quite frustrating to disclose your income to HMRC. However, you need to realise that if you are attempting to sell your services and products online and do not disclose your profitable income, the consequences can be damaging to your business reputation. Further in the discussion of this guide, you will get to know about whether you need to pay taxes as an online seller, what taxes will you pay and what can be the damaging consequences if you opt not to disclose your online income.
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Sales Tax for the Online Sellers – Do I Need to Pay Tax?
In the year 2016, the finance act got in touch with HMRC to focus on the self-employed individual who is working as an online seller. The aim was to gather information about these sellers from the websites and ask them to declare their information earnings while they are submitting their tax returns. The set of rules in this regard should be considered before you associate yourself with this kind of trade. These include the following:
- The products should be modified when they are being sold for a prominent profit margin.
- The limited time in between the process of the product purchase and selling it raises questions about the credibility of the seller.
- The price of your product is fixed.
- The borrowed money to make the product purchase should be returned right after the transaction.
- The repeated same transaction within a limited period is questionable.
- Raise funds for any emergency can be the aim behind online selling.
Limit to Selling Online Before Tax Implications
HMRC’s set of rules is generous enough to not overburden the individuals who are making a little amount as a side online business. Even there is an agreed trading allowance for such sellers who are working on a small scale. This allows small online sellers the factor of freedom and earns up to £1,000 and they do not need to worry about taxes. This plan was implanted by the government to make the tax system easy for beginners and to make the industry of the UK flourish and come as leaders in sharing and digital economy.
As an online seller, you must have information about potential tax traps. Some of the sole traders are too focused on earning online that they are just not aware of the heavy amount they will have to pay in form of tax. This attitude of being unaware of the tax they owe can damage the business financially.
What Taxes do I Need to Pay as an Online Seller?
What tax you owe to pay depends on the type of business you are carrying out online. The possible taxes include the following list:
- Business rates
- Employer’s PAYE
- VAT
- Contribution of National insurance
- Corporation tax
- Income tax
What if I Do Not Disclose My Online Income – The Consequences
Are you aware of the fact that the worst case is if you are caught making profits through online business and failed to disclose your income while submitting tax returns to HMRC can result in prison? There are several examples in which the seller failed to disclose the online income and ended up in the prison. This is easy for HMRC to get track of your online income by getting it from the websites, so, there is no chance of hiding anything from Paypal or other such platforms. You will only regret it and end up damaging your business setup.
Cases like this are tracked down by HMRC and have to pay heavy fines. HMRC ensures to increase the penalties over time. You should be seeking expert help that can guide you on what to disclose to HMRC and avoid such ugly consequences that have involvement of fines and penalties. An accurate self-assessment process is all you need to ensure if you want to avoid the heavy amount of fines.
The Bottom Line
Now that you have gathered a fair amount of information about sales tax for the online seller, we can bring the discussion towards wrapping up. The side income through online selling can be tempting but it needs to be declared to HMRC to avoid any consequences of paying heavy amounts as fines and penalties. You should take care of this matter while you are dealing with self-assessment tax returns.
Moreover, an accurate and transparent self-assessment process is advisable. To make this process seamless you can take help from a professional. This will help you to raise how much you need to declare and what are the limitations that make you owe the tax on your online business profits. We hope these few minutes of reading have helped you to develop a better understanding and you will be able to handle your tax affairs promptly.
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Disclaimer: The information about sales tax for the online seller provided in this article includes text and graphics in general. It does not intend to disregard any of the professional advice.
