What Triggers an eBay Trading Enquiry and How to Respond

With the rise of online selling, more people are using platforms like eBay, Vinted, and Depop to make extra money or clear out unwanted items. But when do casual sales turn into a taxable trade? A recent £60,000 HMRC eBay trading enquiry into eBay activity has raised serious questions. The good news? That eBay HMRC enquiry was dropped, and it provides a valuable learning experience for sellers across the UK.

In this article, we explore what happened, why HMRC investigated, and what steps you should take to stay on the right side of UK online selling tax law.

Why HMRC Is Watching Online Sales More Closely

HMRC is paying closer attention to online marketplaces. The reason is simple: more people are turning casual selling into side businesses without being aware of the tax consequences.

If you’re regularly buying items with the intention to resell for profit, you may be seen as trading—not just selling personal items. And this makes you subject to income tax, National Insurance, and potentially VAT, depending on turnover.

Even if you think you’re just clearing out your wardrobe, HMRC might see things differently

The £60,000 HMRC eBay Trading Enquiry Case: What Happened?

An individual who had a full-time job began selling second-hand goods on eBay as a hobby. Over time, sales increased. They began sourcing items specifically to resell and opened multiple eBay accounts.

HMRC saw this shift in behaviour and launched an enquiry. Using data provided by eBay, they reviewed the seller’s history over several years. HMRC concluded that:

• The person was trading, not casually selling.
• They failed to notify HMRC of the business.
• They submitted incorrect or missing tax returns.

The result? HMRC calculated a liability of over £60,000 in unpaid tax, penalties, and interest.

Why HMRC Believed It Was ‘Deliberate’

HMRC initially treated the  eBay trading enquiry as deliberate, based on:

• The use of multiple eBay accounts.
• The oversight in registering for VAT as turnover neared the threshold.
• The seller agreeing to eBay’s terms, which mention tax responsibilities.
• No tax returns or registration over multiple years.

This meant harsher penalties and a potentially serious financial impact.

Record-Keeping Matters

One of the biggest challenges in this case was poor record-keeping. The seller used a single bank account to manage both personal and business transactions. This made it hard to:

• Separate personal sales from trading income.
• Prove expenses for goods sold.
• Justify deductions for costs like packaging and postage.

HMRC initially disallowed all expenses due to lack of evidence.

You can learn more about your tax responsibilities in our detailed guide — eBay HMRC UK Tax Rules Every Seller Should Know.

Turning the eBay HMRC Case Around

The situation could have ended badly. But thanks to expert tax advice and representation, the individual saw a major reduction in liability.

Here’s how it was achieved:

• Sample-based reviews of bank statements helped show a clear pattern of purchases related to trade.
• Some sales were shown to be personal disposals, not business income.
• A face-to-face meeting with HMRC allowed the seller to explain their side.

At the meeting, several key points were made:

• The client had no formal tax training.
• They thought eBay deducted tax automatically.
• The use of multiple accounts was not an attempt to avoid tax, but resulted from technical issues.
• The seller had difficult personal circumstances that affected their ability to manage taxes.
• In earlier years, they had submitted tax returns for unrelated income—showing no intent to hide.

HMRC revised their stance:

• Penalties were downgraded from ‘deliberate’ to ‘careless.
• The failure to notify HMRC was no longer seen as intentional.
• The final liability dropped to about £9,000—an 85% reduction.

What Counts as Trading?

Understanding the difference between trading and casual selling is critical. HMRC looks at “badges of trade” to decide:

• Frequency: Are you selling often?
• Intention: Are you buying items just to resell?
• Organisation: Do you package and list items in a business-like way?
• Profit motive: Are you doing this for profit?

Selling a few second-hand items occasionally is fine. But if you’re sourcing products to resell, or selling in volume, HMRC may see it as business activity.

What Are the ‘Badges of Trade’ and Why Do They Matter?

When HMRC investigates whether you’re simply selling personal items or running a business, they look at a set of principles called the “badges of trade.”

These badges come from legal case law and help determine whether your activity is a hobby or a taxable trade. No single badge is conclusive—HMRC looks at the overall pattern.

Here are the main badges HMRC considers:

1. Profit Motive
   Are you selling items to make a profit—or just to get rid of them?
   
2. Frequency of Transactions
   Are you selling often, or was this a one-off?
   
3. Nature of the Item
   Are the items capital assets (like your old laptop), or stock that’s typically sold as business goods?
   
4. Supplementary Work
   Are you cleaning, refurbishing, or packaging items professionally to increase their value?
   
5. Modifications or Improvements
   Have you improved the goods before selling?
   
6. Method of Acquisition
   Did you buy the item to use it personally, or specifically to resell?
   
7. Finance and Funding
   Are you reinvesting earnings or using credit to buy more stock?
   
8. Advertising and Promotion
   Are you actively advertising or running the operation in a business-like manner?
   
9. Organisation
   Do you have a structured selling process, like spreadsheets, dedicated packaging, or business hours?

Why Badges of Trade Matter for eBay and Online Sellers

In the case of the £60,000 HMRC eBay enquiry, many of these badges applied:

• The seller bought items to resell (acquisition and profit motive)
  
• They sold frequently and over multiple years
  
• They used multiple eBay accounts
  
• They failed to register as self-employed or declare income
  

HMRC saw these as signs of a deliberate business activity, not casual selling.

Understanding these badges can help you assess whether you need to:

• Register for self-employment
  
• File a Self Assessment tax return
  
• Keep better records of your sales and expenses

New Reporting Rules from 2025

From January 2025, platforms like eBay, Vinted, and Depop will be required to report seller data to HMRC when users:

• Make 30 or more sales, or
• Earn over £1,700 (€2,000) per year

This is not a new tax but will give HMRC better access to your sales information. If you exceed these limits, your data will be automatically sent to HMRC.

So while the law isn’t changing, enforcement is becoming much easier.

Lessons from the eBay Trading Enquiry Case

There are several important lessons for anyone who sells online in the UK:

1. Separate Your Bank Accounts

Use a dedicated bank account for any business-related activity. This makes it easier to track sales, expenses, and profits.

2. Keep Records

Keep a record of:

• What you sold
• How much it cost you
• How much you sold it for
• Any related costs (postage, packaging, platform fees)

This is key if HMRC ever questions your activity.

3. Know the Badges of Trade

Ask yourself:

• Am I selling often?
• Did I buy this item to sell for profit?
• Am I running this like a business?

If the answer is yes to any of the above, you may need to register as self-employed and file a tax return.

4. Don’t Ignore HMRC

If HMRC contacts you, don’t delay. Seek professional advice early. Enquiries are easier to resolve when you respond quickly and openly.

5. Face-to-Face Discussions Help

In complex or high-value cases, arranging a face-to-face meeting can be helpful. It allows you to explain the context, show your intent, and present facts clearly.

6. Representation Matters

Having a knowledgeable tax expert can change the outcome of an HMRC enquiry. From negotiating penalties to presenting your case properly, it can make a huge difference.

Selling Online in the Digital Age

In today’s economy, side hustles are more common than ever. People are finding new ways to earn money through digital platforms. But tax obligations still apply.

If you’re:

• Buying to resell
• Selling in high volumes
• Using multiple platforms

Then you’re likely operating a business, not just casually selling.

Understanding the tax rules and reporting thresholds and keeping proper records will reduce your chances of trouble later on.

Need Help with HMRC or UK Online Selling Tax Issues?

The £60,000 enquiry story has a positive ending. But it also serves as a wake-up call for online sellers in the UK. With more reporting requirements coming into force, HMRC has greater insight than ever.

That doesn’t mean you need to worry if you’re just selling unwanted clothes or electronics. But it does mean that if your activity grows, so does your tax responsibility.

If you’re unsure where you stand, get advice early. It can save you thousands in the long run.

At Apex Accountants, we assist  individuals and small businesses in handling in their tax obligations. Whether you’re selling on eBay, Vinted, Etsy, or other platforms, we can guide you on what counts as taxable trade, how to prepare for reporting changes, and how to handle any HMRC enquiries.

Our team has been supporting UK taxpayers for nearly 20 years. We offer:

• HMRC enquiry support
• Tax return preparation
• Self-employment registration
• Digital tax record keeping
• Advice on online selling income

If you’re unsure about your online activity, don’t wait until HMRC contacts you. Contact Apex Accountants today and speak to a tax expert who can help you stay compliant and worry-free.

Frequently Asked Questions – HMRC and eBay Sellers

1. Does HMRC monitor eBay sellers?
Yes. HMRC reviews online marketplaces, including eBay, to ensure all income is correctly declared. Both casual sellers and regular traders can be investigated if sales appear significant or repetitive.

2. What triggers HMRC to contact an eBay seller?
HMRC may contact you if your reported income differs from information received from eBay or other sources, or if there are unusual sales patterns suggesting undeclared profits.

3. What information does eBay report to HMRC?
eBay shares details of sellers’ total sales and account information if thresholds are exceeded. HMRC uses this data to verify reported income.

4. How much can I sell on eBay without paying tax in the UK?
Occasional personal sales may not be taxable. Regular sales with profits, however, are subject to income tax. Accurate record-keeping is essential to determine tax liability.

5. Do private eBay sellers need to declare their income?
Yes, if you make a profit above the personal allowance or trading threshold. Even small amounts can become taxable if selling frequently or for commercial purposes.

6. What should I do if I receive an HMRC letter about eBay sales?
Do not ignore it. Respond promptly and seek professional advice. Apex Accountants can help you prepare your information and manage communications with HMRC.

7. Can HMRC impose penalties for undeclared eBay income?
Yes. Failure to declare taxable profits can result in penalties, interest, and in severe cases, criminal prosecution. Professional guidance helps reduce risk and ensures compliance.

8. How do I avoid mistakes when reporting eBay income?
Maintain detailed records of all sales, expenses, and costs. Register as a trader with HMRC if needed, declare all profits, and consult a tax professional for correct filing.

9. Does HMRC investigate casual sellers or only businesses?
HMRC focuses on both casual and regular sellers. Frequent or high-value sales are more likely to attract attention, but any undeclared taxable income can be investigated.

10. Can a tax professional help with HMRC eBay enquiries?
Absolutely. A specialist can review your accounts, respond to enquiries, negotiate settlements, and guide you to ensure full compliance with HMRC requirements.