The thrill of seeing your eBay sales grow is fantastic. But as your income increases, so does a question every successful seller faces: how do I manage my tax obligations correctly and legally reduce my bill?
Many online sellers worry about getting things wrong with HMRC. The good news is that with some smart planning and knowledge of the rules, you can significantly lower your tax liability while keeping your business financially healthy and fully compliant.
Here are 12 practical, HMRC-approved tax saving tips for your eBay business.
1. Choose the Right Business Structure
Your business structure is the foundation of your tax planning. For eBay sellers, the two main options are:
- Sole Trader: Simple to set up and run, with lower admin. Your profits are taxed at your personal income tax rates.
- Limited Company: More complex but can be far more efficient for tax purposes, especially as your profits grow.
If your total income from all sources (e.g., your day job plus your eBay profits) pushes you over the £50,270 threshold for the higher rate of tax, trading as a limited company often makes sense. This structure allows you to pay yourself an efficient mix of salary and dividends, which can result in a lower overall tax bill. An accountant can run the numbers to see which is best for you.
2. Open a Separate Business Bank Account
Mixing business and personal finances is a recipe for an accounting headache. Opening a dedicated bank account for your eBay business:
- Makes it easy to track your eBay payouts and business spending.
- Massively simplifies preparing your annual accounts.
- Clearly demonstrates to HMRC that you are running a legitimate business.
Many banks offer free business accounts for the first year, making this a simple and effective step.
3. Pay All Business Expenses from the Business Account
This is a golden rule of bookkeeping. Pay for everything business-related, from postage and packaging to new stock, directly from your business account. This creates an audit trail that is clean and easy to follow.
Top Tip: If your business account is short on funds, transfer the money you need from your personal account first, then make the business payment from the business account. Avoid paying for business items with your personal card wherever possible.
4. Get Your Mobile Phone Bill Paid Tax Free
This is a fantastic perk for anyone trading as a limited company. If the mobile phone contract is in your company's name, the company can pay the entire bill as a tax-deductible expense. HMRC allows one mobile phone per director, and there is no benefit-in-kind charge, even with personal use.
5. Claim Your Internet and Broadband Costs
You can't run an eBay business without the internet. As such, you can claim a portion of your home broadband costs as a business expense. If you're a sole trader, you must calculate a fair percentage for business use (e.g., 50%). If you run a limited company, you may be able to claim more or even have the contract in the company's name.
6. Track and Claim Business Mileage
Those trips to the post office or a supplier add up! If you use your personal car for your eBay business, keep a simple log of your journeys (date, purpose, and miles) and claim the approved mileage allowance. For the 2025/26 tax year, this is:
- 45p per mile for the first 10,000 miles
- 25p per mile thereafter
This rate covers fuel, insurance, and general wear and tear, so you don't have to track dozens of separate receipts.
7. Pay a Salary to Your Spouse or Partner
If your spouse or partner genuinely helps with the business (e.g., packing orders, managing listings, doing admin) and isn't using their full Personal Allowance (£12,570), you can pay them a salary. The work must be real and the pay reasonable for the tasks performed. This is a legitimate way to use their Personal Allowance, which is free from tax, and reduce the business's overall profit.
8. Claim for Business Travel and Subsistence
If you travel for your business, for example, to a trade fair to source new products or to meet a large supplier, you can claim the costs. This includes public transport fares, business mileage, and modest meal costs while you are away from your normal place of work.
9. Claim for Using Your Home as an Office
For most eBay sellers, home is the centre of operations. You can claim for this. HMRC gives you two options:
- Flat Rate (Simple Method): Claim a fixed monthly amount (£10 to £26) depending on the hours you work from home.
- Actual Costs (More Accurate): Calculate a proportion of your actual household bills (like mortgage interest, council tax, gas, and electricity) based on the space you use for your business (e.g., the room used for storage and packing).
10. Make Tax-Efficient Pension Contributions
If your business is profitable, making personal or company pension contributions is one of the most effective tax saving strategies. For limited company directors, company contributions are a fully deductible business expense, reducing your Corporation Tax bill while you save for retirement.
11. Use Accounting Software and Keep Digital Records
Using cloud accounting software like QuickBooks, Xero, or FreeAgent is essential. It helps you track your sales and expenses in real time, see your profit at a glance, and stay organised. With HMRC's Making Tax Digital for Income Tax on the horizon, getting your records digital now will save you a panic at the last minute.
12. Don’t Forget All Your Allowable Expenses
Finally, make sure you claim for everything you're entitled to. Common tax-deductible expenses for eBay sellers include:
- eBay, PayPal, and other platform fees
- Packaging materials (boxes, tape, labels)
- Postage and courier costs
- Website and software subscriptions
- Business insurance
- Training courses related to your business
- Accountancy fees
Always remember the "wholly and exclusively" rule and keep your receipts.
Final Thoughts
Running a successful eBay business provides incredible freedom. By being proactive with your finances and using these HMRC-compliant tips, you can ensure you pay the right amount of tax, and not a penny more.
Need help setting up your eBay business for tax efficiency or managing your accounts? Taxwise Accountancy offers expert advice and affordable accounting packages for online sellers across the UK. Book a Free Consultation with our expert eBay business accountants today.
