Auction Purchases put on Ebay. Tax advice please.

[dgs]

Hi There is a small auction house in our area that i purchase things from either for myself or to put on Ebay.
I'm one of those Ebayers that sell over the allowed amount and got a letter and now have to pay tax on
any profits. But for example if the hammer price on the combined bought items is £219, there is a buyers premium amount of £47.30 and buyers charges of £10.95. Do when i make my calculations of gross profit are these two amounts taken off of my profit figure before i present the figure to HMRC?
Thankyou for any advice.

[echat11]

https://www.gov.uk/guidance/check-if...m_content=4dec

[atticus]

Surely what the item costs you is the total of all that you have to pay.

[dgs]

What i'm saying is, if just the hammer price £249 was for 10 items and on those 10 items i made a profit of say £300?
HMRC would be interested in the gross profit of £300 for their 20%?
But do i add the additional Buyers Premium and Buyers Charges that were on top of the hammer price with the hammer price which would lower that £300?

[wales01man]

You add the total cost purchase price charges and vat unless you are vat registered You can claim other cost/ expenses incurred ii the course of your business.

[dgs]

So my total is £219 + £47.30 + £10.95 = £277.25 which will in effect lower my profit amount which will also lower my tax owed?

[PallasAthena]

So my total is £219 + £47.30 + £10.95 = £277.25 which will in effect lower my profit amount which will also lower my tax owed?

Yes, in my opinion. The cost of the goods to you is whatever you have to pay to the auction house before they become yours. The fact that the auction gives a breakdown of how it made up the total price you have to pay may be interesting but is of no significance in calculating your profit. None of the three components are optional or reclaimable/recoverable from someone else.

I am assuming your trading activity is too small for you to be registered for VAT.

[atticus]

So my total is £219 + £47.30 + £10.95 = £277.25 which will in effect lower my profit amount which will also lower my tax owed?

That is what I tried to say.

[HariSeldon]

if the hammer price on the combined bought items is £219, there is a buyers premium amount of £47.30 and buyers charges of £10.95. Do when i make my calculations of gross profit are these two amounts taken off of my profit figure before i present the figure to HMRC?

Yes, you deduct both the buyers premium and buyers charges to calculate your gross profit.

In accountancy terms these are called "Cost of Sales" which are direct expenses incurred in buying/selling a particular item. So your gross profit is your selling price less your cost of sales which in your case would be:

Gross Profit = Selling Price - Cost Price - Buyers Premium - Buyers Charge

However, are you sure that you have to pay tax on your gross profit? I'm not familiar with any specific eBay/HMRC rules but normally you pay tax on your net profit and not your gross profit. Net profit is your selling price less your cost of sales and less your general operating expenses so in your case would be:

Net Profit = Gross Profit - Delivery/Postage Costs - Marketing Costs - eBay Costs - Office/Electricity/Heating/Insurance Costs - Any Other Business Costs

Essentially you deduct every genuine business expense (except tax, NI and your own wages/drawings) from your sales income and what's left is your net/taxable profit which, if all your income combined is above the tax-free £12,570 personal allowance, you pay tax on.