Am I trading? 1: The badges of trade

One question I'm frequently asked is something like:

"I've sold a lot of CDs / clothes / old furniture on eBay. Does the money I make from that have to go on my tax return?"

The answer - as with so many tax questions - is, "It depends!". If your sales on eBay are "a trade", then the answer is yes. But if they're not - then it's no.

How do you know if your sales are "a trade"?

The Revenue have a series of what they call "badges of trade" to check this. Here's what they are.

1) Whether you meant to make a profit. This isn't the same as meaning to raise some cash for an emergency (see point 6). Are you selling because you want to make a profit out of the sale, or because you don't need/want the items any more and you'd rather make a bit of cash than throw them away or give them to a charity shop? Selling to make a profit is a big pointer to trading - but the Revenue say that's not conclusive!

2) Repeated transactions. Are you selling the same sort of stock over several months (e.g. an eBay shop selling furniture)? That's likely to mean you're trading.

3) Nature of what you're selling. Is it something that you've had personal enjoyment from, e.g. a painting you had hanging on the wall, your old CDs, your wedding dress? If what you're selling is something that didn't give you personal enjoyment (e.g. a bag of loo rolls) then you're far more likely to be trading.

4) Similar transactions to an existing trade. If you have an online flower shop, and you sell a potted plant on eBay, the sale of the potted plant would count as part of your trade because your business is to sell similar goods.

5) Changes to the item. Did you "repair, modify or improve" the item to make it sell more easily, or for a greater profit? If you did, that could point to trading.

6) How the sale was made. Did you sell the item as a trading organisation would do, or did you sell it to raise some cash for an emergency? Selling on eBay through an eBay shop would be trading. Selling something through the classified columns of your local paper is less likely to be trading.

7) How the item was bought. Did you have to borrow money in order to buy the item? Could you only repay that money back by selling it? If yes, you could be trading.

8) How quickly the item was sold. Selling items very soon after they were bought could indicate a trade (e.g. buying wholesale stock to sell on a market stall). The longer you've kept the goods, the less likely you are to be trading - but that depends on the nature of the items. A trader selling antique furniture would keep his stock for longer than a greengrocer selling fresh fruit and veg.

9) How you acquired the item. Did you inherit it or receive it as a gift? Selling items you've inherited or been given points away from trading.

That's what the Revenue are looking for... BUT what happens if you can see several badges in your situation, and some say you're trading and some say you're not?

Next article coming up!