HMRC Record Keeping: The Definitive Guide for eBay Traders and Businesses
If you are selling on eBay—whether as a sole trader or a limited company—keeping accurate records isn't just "good practice"; it is a strict legal requirement. With HMRC’s new digital platform reporting rules (OECD) fully active, platforms like eBay now automatically share seller income data with HMRC.
This guide details exactly what documents you need to keep to stay compliant, audit-ready, and stress-free.
1. The Golden Rule: Business Bank Account Statements
Even if you are a sole trader, separating your finances is critical. You must retain all business bank account statements.
- Why: These act as the "source of truth" for your turnover. HMRC uses them to cross-reference your declared income.
- Retention Period: 5 years after the submission deadline (Sole Traders); 6 years (Limited Companies).
- Expert Tip: If you use a personal account, you must highlight every single business transaction. This is messy during an audit—open a separate business account to stay safe.
2. PayPal & Payment Processor Statements
Most eBay businesses use PayPal, Managed Payments (Ayden), or other processors. You cannot rely solely on the "net amount" hitting your bank.
- What to keep: Monthly statements showing the gross sale amount, the fees deducted, and the net payout.
- The Trap: If you only record the net amount deposited into your bank, you are under-reporting your turnover (illegal) and missing out on claiming fees as an allowable expense (tax inefficient).
3. eBay Sales Reports (Monthly)
You need the detailed transaction reports from eBay, not just the summary dashboard.
- Required Data: Date of sale, item description, gross sale price, shipping charged, and sales tax collected (if selling internationally).
- HMRC Context: Under the new Digital Platform Reporting rules, eBay reports your sales to HMRC. Your records must match theirs.
4. Purchase Invoices & Stock Records
Every item you sell must have a "paper trail" of where it came from.
- For Resellers: Keep every invoice from wholesalers or receipts from charity shops/car boot sales.
- Margin Scheme Users: If you sell second-hand goods, you must keep a "stock book" linking the purchase invoice to the specific sale to calculate the margin correctly.
See HMRC Internal Manual: VATMARG02200 - Margin Schemes Record Keeping
See HMRC Internal Manual: VATMARG02200 - Margin Schemes Record Keeping
5. Expense Receipts
You can only reduce your tax bill if you can prove the expense was "wholly and exclusively" for business.
- Packaging: Boxes, bubble wrap, tape.
- Postage: Proof of postage (Royal Mail Click & Drop manifests/invoices).
- Overheads: A proportion of home internet, electricity (if working from home), and insurance.
- Digital Tool: Use software like Xero or QuickBooks to snap photos of receipts immediately. Thermal receipts fade; digital copies do not.
6. Wages and Salary Reports
If you employ staff (even family members) to help pack or list items, you must run a compliant payroll.
- Documents: Payslips, P60s, and P11 reports.
- HMRC Manual: Failure to keep these records can trigger specific penalties under the PAYE Manual.
7. Loan and Finance Schedules
If you took out a business loan, PayPal Working Capital, or bought equipment on finance:
- Keep: The credit agreement and annual interest certificates.
- Why: Repaying the loan principal is not a tax deduction, but the interest you pay is a valid business expense. You need the schedule to separate the two.
8. VAT Returns and Calculations
If your turnover exceeds £90,000 (or you registered voluntarily), MTD (Making Tax Digital) rules apply.
- Requirement: You must keep a "digital link" of records. You cannot just type final figures into the HMRC website; the calculation must flow from your software.
- Retail Schemes: If you use a Retail Scheme (calculating VAT on daily gross takings), you must keep specific daily records of takings.
See HMRC Guidance: Record keeping for VAT (Notice 700/21)
See HMRC Guidance: Record keeping for VAT (Notice 700/21)
Summary of Retention Periods
Sole Trader: 5 years after the 31 Jan submission deadline
GOV.UK Self-employed records
Limited Company: 6 years from the end of the financial year
GOV.UK Company records
VAT Records: 6 years
HMRC Internal Manual CH15400
"Am I Trading?" (The Badges of Trade)
Not sure if you are a business or just clearing out the attic? HMRC uses the "Badges of Trade" to decide. If you buy items with the intention to sell them for a profit, you are likely trading.
- Check the Official Manual: BIM20205 - Meaning of trade: Badges of Trade
