Making Tax Digital for eBay sellers: when it starts for you and how to get ready

What is Making Tax Digital for eBay sellers?

Making Tax Digital for eBay sellers means keeping your business records digitally and sending regular updates to HMRC through compatible software, instead of collecting a year of paperwork for one tax return. It applies to sole traders and landlords, so it applies to people who trade on eBay as sole traders. According to gov.uk's page on when you need to use Making Tax Digital for Income Tax, it is being phased in over three years, starting with the largest businesses.

When it starts for you depends on your qualifying income. For an eBay seller, the key point is that qualifying income is your income before expenses: your sales, not your profit.

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

When does Making Tax Digital start for you?

gov.uk sets out three start dates for sole traders and landlords:

Each start date looks back at an earlier tax year. That gives you time to prepare, but it also means the year that decides your start date may already be under way. If you are an eBay seller whose sales are growing, the year you are trading in now could be the one that brings you in.

HMRC normally uses the figures on your Self Assessment tax return to decide whether you are in, so the return for the deciding year matters. If you are close to a level, make sure the sales figure on your return is accurate and that you can show how you reached it from your eBay and other sales reports.

What counts as qualifying income for an eBay seller?

Qualifying income is the total income you receive from self-employment and property in a tax year, before you take off any expenses. For an eBay seller who is a sole trader, that is your gross trading income: what buyers paid you for goods, which usually includes postage you charge.

This catches resellers by surprise. Reselling often has thin margins, so sales can be large while profit is small. A seller with modest profit but high sales may need Making Tax Digital years before they expected.

What is added together

• Income from every self-employment you have, for example eBay trading plus freelance work.
• Income from property you rent out, if you are also a landlord.
• Sales from every channel, not just eBay: other marketplaces, your own website and markets.

Couples and shared eBay accounts

Qualifying income is worked out for each individual. If two people sell through one eBay account, decide clearly whose business it is, or whether it is a partnership, because that decides whose income counts and when each person is brought in. Partnerships follow their own timetable under the rules, so check gov.uk if you trade together.

Wages from a job are not self-employment income, so they do not count towards qualifying income. Check gov.uk for the full definition, as some types of income are treated differently.

A worked example: three eBay sellers

Example: three hypothetical sole traders. The figures are invented to show how the test works, not tax advice.

Seller A's profit is lower than Seller B's, yet Seller A is brought in first, because the test looks at sales. Seller C is below all three levels on these figures, but should keep checking each year, because higher sales in a later year could change that.

What changes once Making Tax Digital applies?

The main changes are about how and when you keep and send records.

• Digital records. You keep records of your business income and expenses digitally, in software or in a spreadsheet linked to software.
• Regular updates. You send summaries of your income and expenses to HMRC during the year, on the schedule gov.uk sets out.
• Year-end finalising. You still confirm your final figures for each tax year, through the software.
• Compatible software. You need software that works with Making Tax Digital for Income Tax. HMRC publishes a list of compatible products.

For an eBay seller with tidy monthly records, the change is mostly about the software. For a seller who keeps receipts in a box until January, it is a big change, and starting early makes it far easier.

How should eBay sellers get ready?

1. Check your qualifying income. Add up your gross income from self-employment and property for each relevant tax year, using sales reports from every channel.
2. Find your start date. Compare your figures with the three levels above and note when you are likely to be brought in.
3. Separate your money. Use a business bank account, so business transactions are easy to bring into software.
4. Choose software early. Pick a compatible product and try it for a few months before you have to use it.
5. Move to monthly bookkeeping. Record sales, refunds, eBay fees and costs every month. Our guide to record keeping for eBay sellers has a simple routine.
6. Talk to your accountant. Ask how they will work with you under the new system and what they need from you.

Choosing software as an eBay seller

Most compatible products cover the basics, so choose on the things that matter for an online seller:

• Bank feeds. Transactions from your business account arrive automatically, so payouts and supplier payments are not typed in by hand.
• Importing sales reports. A way to bring in eBay order or transaction reports, or at least monthly totals, so gross sales and fees are recorded separately.
• Receipts. A phone app or upload tool that attaches a photo of each receipt to the transaction.
• Foreign currency. If you sell on other eBay sites or pay overseas suppliers, the software should handle other currencies cleanly.
• VAT. If you are or may become VAT registered, software that also files VAT returns saves running two systems.
• Your accountant's access. Many accountants prefer particular products; ask before you commit.

Try the software with a few months of real data before your start date. Problems with how eBay income is imported are much easier to fix in a trial than in your first official update.

Recording eBay income correctly

Software makes one old mistake more visible: recording only your eBay payouts. A payout is what is left after eBay fees and refunds, so it understates both sales and costs. Record gross sales as income and fees as an expense, so your updates to HMRC match the figures eBay holds. That matters because digital platforms such as eBay may have to report seller details and income to HMRC.

How does Making Tax Digital fit with other thresholds?

Several HMRC tests use different figures, and it is easy to mix them up:

• Trading allowance: up to £1,000 a year of trading income tax free; over £1,000 gross means registering for Self Assessment by 5 October after the tax year. See our guide to the trading allowance and eBay.
• Making Tax Digital for Income Tax: qualifying income over £50,000, £30,000 or £20,000, depending on the year.
• VAT registration: taxable turnover over £90,000 in the last 12 months, or expected over £90,000 in the next 30 days alone.

Your structure matters too. Making Tax Digital for Income Tax is for individuals, so a limited company's profits are outside it. That is not a reason on its own to form a company; our guide to sole trader vs limited company for eBay covers the wider trade-offs.

A quick checklist

• Work out your qualifying income, before expenses, for 2024 to 2025, 2025 to 2026 and the current year.
• Note your likely start date from the gov.uk table.
• Open a business bank account if you do not have one.
• Choose compatible software and start using it before you must.
• Keep gross sales and fees as separate lines every month.
• Agree with your accountant how you will work together under the new rules.