Running a successful eBay business is a fantastic achievement. You’ve mastered sourcing products, writing compelling listings, and providing excellent customer service. But are you mastering your finances? The key to maximising your profit isn't just about sales; it's about legally reducing your tax bill by claiming every single allowable business expense.
Many eBay sellers, from sole traders using a spare room to established limited companies, miss out on valuable tax deductions simply because they aren't sure what they can claim. This guide will walk you through the expenses HMRC allows you to deduct, helping you keep more of your hard-earned money.
The Golden Rule: ‘Wholly and Exclusively’
Before we dive into the list, you must understand HMRC's most important rule. For an expense to be tax-deductible, it must be incurred ‘wholly and exclusively’ for the purposes of your trade.
This means the entire cost must be for your business. If a cost has a dual purpose (part business, part personal), you can only claim the business portion. For example, you can claim the business percentage of your mobile phone bill, but you can't claim the cost of a new TV for your living room.
A Crucial Note on Invoices: Sole Trader vs. Limited Company
How you record your purchases is vital. Getting this wrong can lead to disagreements with HMRC.
- Limited Company: All purchase invoices and receipts must be in the registered company's name. They cannot be in your personal name.
- Sole Trader or Partnership: You have more flexibility. Invoices can be in your personal name or your trading name (e.g., "Dave's Vintage Wares").
The Comprehensive List of Allowable Expenses for Your eBay Business
We've broken down the common expenses into logical categories to make them easier to track.
1. Costs Directly Related to Your Sales (Cost of Goods Sold)
These are the essential costs of the products you sell.
- Purchases: The cost of buying the stock that you sell on eBay. This is your single biggest expense.
- Direct Labour: If you pay someone to manufacture, modify, or prepare your items for sale.
- Other Direct Costs: Any other costs directly tied to getting your product ready, such as import duties or shipping costs to get the stock to you.
2. Selling and Marketing Costs
The costs associated with the eBay platform and getting your products seen.
- Commissions Payable: This includes eBay's final value fees, insertion fees, and any payment processing fees (from eBay Managed Payments or previously PayPal).
- Advertising and PR: The cost of promoting your listings, running eBay ad campaigns, or marketing your business on social media.
- Postage and Courier Services: The amount you spend on sending items to your customers.
- Stationery and Printing: This is a big one for eBay sellers. It includes packaging materials like boxes, jiffy bags, bubble wrap, tape, and the cost of printing postage labels and customer invoices.
3. Office, Premises & Admin Costs
Whether you work from a dedicated unit or a corner of your dining room, these costs count.
- Use of Home as Office: If you run your eBay business from home, you can claim a proportion of your household costs. You can either use HMRC's simplified flat rate (based on hours worked from home per month) or calculate a proportion of your actual costs (like mortgage interest/rent, council tax, electricity, and gas).
- Telephone and Internet: You can claim the business use percentage of your landline, mobile, and internet bills.
- Software: The cost of any software essential for your business, such as accounting software (like Xero or QuickBooks), inventory management tools, or photo editing software.
- Equipment Expensed: Small items of equipment like a label printer, camera, or office chair can often be claimed as a day-to-day running cost. More expensive items like a computer fall under Capital Allowances, which we explain in section 7.
4. Staff and Subcontractor Costs
If you have people helping you, their costs are deductible.
- Wages and Salaries: The salaries you pay to your employees.
- Employer's NI: The employer's National Insurance contributions you make for your staff.
- Pensions and Bonuses: Any pension contributions or bonuses you provide.
- Subcontractor Costs: The fees you pay to freelancers or other businesses for services like product photography, copywriting, or virtual assistance.
- Staff Training and Welfare: Costs for courses relevant to your business (e.g., an online marketing course) or staff welfare items.
5. Vehicle and Travel Expenses
Costs for using your vehicle for business tasks like visiting suppliers or posting parcels.
You can claim these costs in two ways:
1. Simplified Mileage Allowance: Claim a flat rate of 45p per mile for the first 10,000 business miles, and 25p thereafter..
2. Actual Costs: Claim a proportion of the actual running costs of your vehicle. This includes:
- Fuel Expenses,
- Motor Insurance
- Repairs and Maintenance
- Road Tax
- Breakdown Cover
- Travel and Subsistence: Other travel costs like train tickets to visit a trade show or a wholesaler.
- Parking: Parking fees incurred while on business trips.
6. Professional and Financial Costs
The costs of keeping your business compliant and insured.
- Accountants Fees: The cost of hiring an accountant (like Taxwise Accountancy!) to prepare your accounts and tax returns.
- Bank Charges: Monthly fees and transaction charges on your business bank account.
- Interest: Interest paid on business loans or credit cards used for business purchases.
- Other Insurance Costs: Public liability insurance or specific stock insurance.
- Legal and Professional Fees: Costs for legal advice or other professional consultancy.
- Subscriptions: Membership fees for trade bodies or subscriptions to trade publications relevant to your business.
7. Purchasing Business Assets (Capital Allowances)
What happens when you buy a significant item for your business, like a new computer, a printer, office furniture, or even a motor vehicle for deliveries?
These larger purchases aren't treated as simple day-to-day running costs. Instead, they are classed as 'assets'. You cannot claim the full purchase price as an expense in the year you buy them.
However, HMRC allows you to claim tax relief through a system called Capital Allowances. This is how you get tax relief for the cost of major assets, which will reduce your Income Tax or Corporation Tax bill.
Assets that typically qualify for Capital Allowances include:
- Computers, laptops, printers, and scanners
- Office furniture (desks, chairs)
- Plant and machinery
- Equipment
- Motor vehicles used for the business
The rules around Capital Allowances, especially with schemes like the Annual Investment Allowance (AIA), can be complex. Getting expert advice ensures you claim the maximum relief you're entitled to.
What Can't You Claim?
It's just as important to know what HMRC does not consider an allowable expense.
- Personal Expenses: Any cost that is not for the business.
- Entertaining: You cannot claim for entertaining clients, suppliers, or customers.
- Depreciation and Amortisation: While these are noted in your accounts, tax relief is given through the Capital Allowances system mentioned above, not as a direct expense.
- Travel to Your Normal Place of Work: Commuting from home to a permanent workplace is not an allowable expense.
Stay Organised, Maximise Profit
The key to successfully claiming all your allowable expenses is meticulous record-keeping. Use accounting software, keep all your receipts and invoices, and maintain a separate bank account for your business.
By understanding and tracking these expenses, you ensure you're not paying a penny more in tax than you need to.
Feeling overwhelmed? That's what we're here for. Contact the friendly team at Taxwise Accountancy today, and let us handle the numbers so you can focus on growing your eBay business. Book Free Consultant for your eBay business.
