The £1,000 trading allowance and selling on eBay: when you can use it and when you must register

What is the trading allowance for eBay sellers?

The trading allowance is a tax exemption for small amounts of trading income. According to gov.uk's page on tax-free allowances on property and trading income, individuals can have up to £1,000 a year of trading income tax free. For eBay, the trading allowance matters if you sell to make money, for example buying items to resell or making things to sell, rather than clearing out your own belongings.

If your gross trading income for a tax year is over £1,000, you must register for Self Assessment, by 5 October following that tax year. The allowance does not apply to trading income from a partnership, and gov.uk lists some other cases where it cannot be used.

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

Is the £1,000 based on sales or profit?

Sales. The allowance is measured on gross trading income: the total you receive from trading before any costs come off. For an eBay seller that means the full amount buyers pay for your goods, usually including postage you charge, not what is left after eBay fees, stock and postage labels.

This is the part most people get wrong. A seller who makes only a few hundred pounds of profit can still have gross trading income well over £1,000, because reselling usually has thin margins. If you buy an item for £8 and sell it for £12, the whole £12 counts towards the test, not the £4 you made.

What does not count as trading income

• Money from selling your own unwanted personal belongings, which is usually not trading.
• Money you put into the business from savings.
• Refunds you gave back to buyers, which reduce the income you received.

Watch for the sales that are easy to miss. Postage you charge buyers is part of what they pay you. Sales on other eBay sites, paid in dollars or euros, count once converted to pounds. Cash sales at a car boot or market, and orders through social media, count too if they are part of the same trade. The test covers all your trading as an individual, so a figure taken from eBay alone can understate it.

When do eBay sellers need to register for Self Assessment?

You must register for Self Assessment if your gross trading income for a tax year is over £1,000. The deadline is 5 October following the end of that tax year. You register on gov.uk's Self Assessment registration page, and HMRC then sends you what you need to file a tax return.

Registering does not mean you will owe tax. You may have little or no profit after expenses, or your total income may be covered by your other allowances. It means HMRC will see your figures and work out what, if anything, is due.

If you were over £1,000 in an earlier year and did not register, take advice about putting it right. Coming forward yourself is usually better than waiting for HMRC to contact you.

How do you use the trading allowance above £1,000?

When your gross trading income is over £1,000, the allowance still has a use. You can usually choose one of two ways to work out your taxable profit:

1. Deduct your actual expenses. Your profit is your trading income minus your allowable business costs, such as stock, eBay fees, postage and packaging.
2. Deduct the trading allowance instead. Your profit is your trading income minus £1,000, and you do not claim your actual expenses.

You cannot do both. The trading allowance route suits sellers with low costs, such as people selling items they make from cheap materials. The expenses route suits resellers, whose stock costs are usually much higher than £1,000. gov.uk lists what you can claim on its page about expenses if you are self-employed.

Can you use the trading allowance alongside a job?

Yes, in most cases. Many people who sell on eBay in the evenings also have a job, and the trading allowance is about your trading income, not your wages. Your salary is taxed through PAYE as usual, and your eBay trading is looked at separately. gov.uk does list some cases where the allowance cannot be used, such as income from a partnership, so read the list on its allowances page if your situation is unusual, for example if you sell to your own employer.

The allowance is one per person, not one per business. If you trade on eBay and also do a little paid work as a freelancer, the two kinds of trading income are added together for the £1,000 test.

What if you are close to £1,000?

If your gross trading income is near the limit, keep a running total through the year rather than guessing at the end. Use the date of each sale, and remember that a busy December or a few larger orders can tip you over. Being slightly over is not a disaster: you register for Self Assessment, and you can usually still deduct the £1,000 allowance from your income, so the tax on a small amount above it is small. What causes trouble is not registering when you should have.

A worked example: three eBay sellers

Example: three hypothetical sellers in one tax year. The numbers are invented to show how the rule works, not tax advice.

Seller A is under the £1,000 limit, so their trading income is covered and they do not need to register for this. Seller B's costs are low, so deducting the £1,000 allowance gives a lower taxable profit than deducting £350 of expenses. Seller C, a reseller, has high stock costs, so claiming actual expenses gives the lower profit.

Seller C also shows why gross income matters. Their profit of £1,800 sounds small, but their sales of £6,000 put them well over the £1,000 test.

How does the trading allowance fit with HMRC platform reporting?

Digital platforms such as eBay may have to report seller details and income to HMRC under the reporting rules for digital platforms. A seller of goods is not reported if they made fewer than 30 sales and received 2,000 euros (about £1,700) or less in the year.

The two tests are separate and use different figures. You can be reported and still owe nothing, for example if you only sold personal belongings. You can also be under the reporting test and still need to register, for example if you made 20 sales as a trader that brought in £1,500. Our guide to HMRC digital platform reporting sets out the reporting side.

Because HMRC can compare platform reports with tax returns, make sure your own figures for the tax year can be explained against what eBay holds. If a report shows more than you declared, have the records ready that show which sales were personal items and which were trading.

What should eBay sellers keep track of?

To know where you stand against the trading allowance, you need your gross trading income for each tax year. That means:

• a sales report from eBay for the tax year, and from any other platform you trade on;
• a list of refunds you gave;
• receipts for stock and other costs, in case you claim expenses instead of the allowance;
• a note of which sales were personal belongings rather than trading, if you sell both.

Mixing personal and trading sales on one account makes this harder. If you trade regularly, register as a business seller on eBay and keep personal clear-outs separate. Our guide to record keeping for eBay sellers has a simple monthly routine.

A quick checklist

• Decide whether your eBay selling is trading or clearing personal items.
• Add up your gross trading income for the tax year from every platform.
• If it is over £1,000, register for Self Assessment by 5 October after the tax year ends.
• Compare the trading allowance with your actual expenses and use whichever gives the lower profit.
• Keep sales reports and receipts, whether you are under or over the limit.
• If you sell with someone else, check whether it is a partnership before relying on the allowance.