The short answer is: No, you do not legally have to do "bookkeeping" in the formal sense to comply with HMRC. However, you must keep accurate records and documents.
It is a subtle but critical difference. HMRC does not legally require you to use accounting software (like Xero or QuickBooks) or maintain a double-entry ledger. Their strict legal requirement is that you keep the original records (evidence) of your trading so that an accurate tax return can be prepared.
This guide explains the difference, the risks of skipping bookkeeping, and whether you should handle it yourself.
Record Keeping vs. Bookkeeping: What’s the Difference?
Many new eBay traders confuse the two. To stay compliant, you need to understand the distinction.
- Record Keeping (Mandatory): This is the act of saving the evidence of your transactions. For an eBay business, this means saving your bank statements, purchase invoices, postage receipts, and eBay payout reports.HMRC Rule: You must be able to show "a complete and accurate return" based on these records.
- HMRC Rule: You must be able to show "a complete and accurate return" based on these records.
- Bookkeeping (Optional but Recommended): This is the process of organising those records into a system (like a spreadsheet or software) to calculate your total profit, loss, and expenses.
Key Takeaway: You can technically keep all your receipts in a shoebox and hand them to an accountant at the end of the year. That satisfies "record keeping." But without "bookkeeping," you won't know if you are making a profit until it is too late.
Pros and Cons of Having a Bookkeeping System
While not legally mandatory, running an eBay business without a bookkeeping system is risky.
Advantages
- Audit Protection: If HMRC investigates you, they will ask to see how you calculated the figures on your tax return. A clear bookkeeping system provides a "digital audit trail" that matches your bank bank statements to your sales.Source: HMRC Enquiry Manual EM4650 (Failure to keep adequate records can lead to penalties of up to £3,000).
- Source: HMRC Enquiry Manual EM4650 (Failure to keep adequate records can lead to penalties of up to £3,000).
- Accurate Margins: eBay fees, ad fees, and shop subscriptions are complex. Bookkeeping helps you see your true profit per item, not just the cash in the bank.
- Claiming All Expenses: It is easy to lose a £50 receipt for packaging tape. If it is booked immediately, you claim the tax relief. If it is lost, you pay more tax.
Disadvantages
- Cost: Accounting software (like Xero, QuickBooks, or Link My Books) costs money (monthly subscriptions).
- Time: It takes discipline to sit down once a week to reconcile your accounts.
- Complexity: Understanding how to split "Gross Sales" vs "Net Payouts" from eBay Managed Payments can be confusing for beginners.
Can I Do Bookkeeping Myself? (DIY vs. Professional)
Yes, absolutely. You do not need a qualification to do your own books.
However, be aware of the "Knowledge Gap." Professional bookkeepers train for years (often AAT qualified) to understand account codes, capital allowances, and VAT rules.
Option 1: DIY (Do It Yourself)
- Best for: Sole traders, hobby sellers, or those with low transaction volume (under 50 sales a month).
- Tools: A simple Excel spreadsheet or basic software like Quickbooks Self-Employed.
- The Challenge: You must learn how to handle "accruals" (sales made in March but paid in April) and how to correctly categorise equipment vs. stock.
Option 2: Hiring a Professional
- Best for: VAT-registered businesses, Limited Companies, or sellers with high turnover (£85k+).
- The Benefit: They prevent expensive errors. For example, claiming VAT back on Royal Mail postage (which is often VAT-exempt) is a common DIY mistake that attracts HMRC penalties.See: HMRC VAT Record Keeping Guidelines
- See: HMRC VAT Record Keeping Guidelines
