Allowable expenses for eBay sellers: what you can claim and what you cannot

What are allowable expenses for eBay sellers?

Allowable expenses for eBay sellers are the costs of running your selling business that you can take off your income when working out your taxable profit. If you trade on eBay as a sole trader, you pay tax on profit, not on sales, so every allowable expense you record correctly reduces your tax bill. gov.uk lists the rules in its guide to expenses if you are self-employed.

The basic test is that the cost is for the business. Something you buy purely for personal use is not allowable, even if you sometimes use it for selling. Something you use for both gets split, and only the business part counts.

This guide explains the general rules in plain words. It is not tax advice, so check your own situation with HMRC or a qualified accountant.

Which costs can eBay sellers usually claim?

The table lists costs that an eBay business commonly has, and how they are usually treated. Check gov.uk for the detail on anything you are unsure about.

Stock: the biggest expense for most sellers

For a reseller, stock is usually the largest cost by far, so it deserves care. The cost of stock includes the price you paid the supplier and the costs of getting it to you, such as shipping, customs duty and import VAT you cannot reclaim. Keep each supplier invoice and link it to the batch it paid for.

Stock that is damaged, lost or sent to a buyer as a replacement is still a business cost. Stock you take for your own use is not, so take it out of your figures. If you hold a lot of stock at the end of the year, your accounting basis decides how it is treated, which is covered below.

If you are VAT registered

Once you are registered for VAT and reclaim VAT on your costs, record expenses without the VAT you reclaim. The VAT goes on your VAT return instead. If you are not registered, the full amount you paid, including VAT, is the expense.

Selling software counts like any other business tool. If you pay for a repricing or research subscription, such as Dropizon's plans listed on the plans page, keep the invoices with your other expenses.

How do you claim costs you share with personal life?

Many sellers work from a spare room, use their own phone and drive their own car. These mixed costs are allowable only for the business part, and you need a sensible, consistent method to work that part out.

Phone and broadband

Estimate the share of use that is for the business, for example from a typical month's calls and data. Write the method down and use it every year unless your use changes.

Working from home

You can either claim a proportion of costs like heating, electricity and rent based on the space and time used for business, or use HMRC's simplified expenses, which give flat monthly rates based on the hours you work at home. gov.uk explains both. The flat rate is simpler; the proportion method can be higher if you use a lot of space, such as a room full of stock.

Vehicles

For a car or van, you can usually claim either a share of actual running costs or HMRC's simplified mileage rates for business journeys. Keep a mileage log with the date, purpose and distance of each trip.

What can eBay sellers not claim?

Some costs are often claimed wrongly. These are generally not allowable:

• Personal spending. Food, personal clothing and household items you use yourself.
• Your own drawings. Money you take out of the business for yourself.
• Stock you keep. Items you bought as stock and then kept for personal use should come out of your business costs.
• Fines and penalties. For example, parking fines or HMRC penalties.
• Entertaining. Buying meals or drinks for clients or suppliers.
• The personal share of mixed costs. Only the business part of your phone, home or car counts.

Clothing is a common grey area. Ordinary clothes are not allowable even if you wear them only while packing orders, because they also keep you warm and dressed. Protective clothing or a uniform needed for the work is different. The same logic applies to other everyday items: if it has a real personal benefit, it is usually not a business expense.

Claiming personal costs as business expenses can lead to tax to pay back, interest and penalties if HMRC checks your return. If in doubt, leave it out or ask.

A worked example: working out taxable profit

Example: suppose a hypothetical sole trader sells homeware on eBay. Every figure is invented to show the method, not tax advice.

In this example, without claiming expenses the seller would be taxed on £27,100. With them, the taxable figure is £6,320. Missing even one category, such as the promoted listings fees, would mean paying tax on money that was never profit.

The seller could instead deduct the £1,000 trading allowance rather than actual expenses, but with costs this high, actual expenses give a much lower profit. Our guide to the trading allowance and eBay explains that choice.

What evidence do you need for expenses?

Every expense needs evidence that shows what it was, when you paid and that it was for the business. gov.uk's guide to business records if you are self-employed sets out what to keep. For an eBay seller that usually means:

• supplier invoices and receipts for stock;
• the monthly eBay invoice for fees;
• postage labels and courier invoices;
• software and subscription invoices;
• a note of how you split any mixed-use costs, and a mileage log if you claim travel;
• bank and card statements to back everything up.

The eBay invoice is easy to miss because fees come out of your sales before you are paid, so they never appear as a payment in your bank. Download it every month. Our guide to record keeping for eBay sellers has a routine that captures all of this.

Does the accounting basis change what you claim?

Yes, for some costs. Most sole traders use the cash basis, which records income and expenses when money comes in and goes out. gov.uk explains the cash basis. Under it, you can usually claim equipment such as a printer or scales as an expense. Under traditional accounting, equipment is usually claimed through capital allowances instead, and unsold stock at the year end is treated differently.

Stock is the area where the basis matters most for eBay sellers, because a large purchase late in the year can make one year's profit look very low and the next year's very high. Ask an accountant which basis suits your business, and stick to it.

A quick checklist

• List every type of cost your eBay business has and check each against gov.uk's guidance.
• Download the eBay invoice every month and record fees as an expense.
• Decide a fair, written method for splitting phone, home and vehicle costs.
• Keep receipts and invoices for every expense, filed by month.
• Compare actual expenses with the £1,000 trading allowance and use whichever is better.
• Take out personal use of stock and personal spending before you file.