Setting up an eBay business

The phenomenal success of auction site eBay has created a new breed of business, able to reach customers in specialised areas all over the world, at very little cost.


The phenomenal success of auction site eBay has created a new breed of business, able to reach customers in specialised areas all over the world, at very little cost.

The phenomenal success of auction site eBay has created a new breed of business, able to reach customers in specialised areas all over the world, at very little cost.

“The first thing you need to do is set up accounts at wholesalers, preferably a credit account,” advises Sunil Parekh of PJT Accountants. ”This way you buy from the wholesaler, sell it on eBay, get paid by your customer and then pay the wholesaler 30 days later. Instant profit!”

“Open an account with eBay and get their free listing tool for your adverts,” continues Simon Smith, General Manager of accounting software firm MYOB. “Then open an online banking account so you can take payment via credit card.” Options include www.paypal.com, www.nochex.com or www.worldpay.co.uk.

Smith also offers the following tips:

Within three months you must contact Her Majesty’s Revenue & Customs and inform them you are starting a business. You can form a limited company or inform them that you are a becoming self-employed, both of which affect your VAT and class of National Insurance.

Look for deductions that can offset income. For example, equipment purchases, business, auto, entertainment and travel expenses.

Keep records of everything that is bought and sold. The best way to do this is to invest in an accounting software package that will help with tax, payroll and other business accounting requirements. There are a few options available.

Never mix your eBay business account with your personal spending. This will make filling in tax returns much harder than it already is.

Do not assume eBay will track or report taxes for its sellers. It’s your responsibility to make sure you comply with government regulations. Don’t use the cash method of accounting. As a business with inventory, you will need to use the accrual basis method of accounting. This means income and expenses are recorded as they occur, regardless of whether cash actually changes hands. A sale is entered into the books when the invoice is generated, not when the cash is collected. An expense occurs when materials are ordered.

As regards VAT, if you have an increase of income, it is your responsibility to put on the tax. If you expect your income to exceed £60,000, you must also register for VAT. Don’t think that you can avoid paying VAT if you are selling internationally. VAT applies if you are selling goods throughout the EU. It is also likely that you will have to get an export permit and register with Customs and Excise for international trading

And finally, “don’t misrepresent what you are selling,” warns Smith. “According to the Sales of Goods Act, if you misrepresent goods you are liable for a whole range of penalties.”

(20/5/05)

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