Small Online Trading Card Business - Start Up Help

[JoshWinnard]

Late last year I started selling some trading cards on eBay from my personal collection. I was doing pretty well so continued to to list more and currently, I've sold around £750 worth (not taking into account any expenses). Obviously this is getting close to the £1000 threshold for income tax. Ideally I'd like to start putting any profit back into buying more cards to sell on and grow it from there. I've started looking into the different ways I could do this, I've thought about starting a new eBay account linked to a new bank/paypal for neatness, rather than it all being mixed up in personal purchases etc. The only downside would be losing feedback score etc, but I'm confident I could build this up again. Is this the best way to go about it? Then I would have a clear date when I started trading and all sales and purchases will be recorded from one account going forward.

In terms of accounting, accrual-based seems a bit much considering the amounts I'm dealing with. I'm employed full time so this is only a side hustle really, but of course, I want to put some effort into making it profitable. Obviously my other option is a cash basis, which seems more manageable to me, but I have some queries in regard to what I'm selling, it seems like a grey area from what I've read. I can easily record any expenses (postage, packaging, stock purchases) and income from sales, but it's some of the starting out parts I'm having trouble with.

My inventory is going to be fairly large and I'll be keeping a spreadsheet tracking it all. For starting out, my inventory is all going to be from my personal collection, potentially 500/600 cards worth. A lot of these are going to be low value, but how to I go about logging this? It can't be classed as an expense because I haven't actually purchased them via the business and a lot of them I have had for years. Valuing them all would be very tricky too as prices fluctuate and the bulk of that would be 10-50ps worth individually. Ideally, I want to sell a lot of that and keep reinvesting in more expensive items, I do have some more expensive cards that I already have listed (eg one is listed at £45). As for future stock purchases, I feel like that would be tricky too. For individual card purchases that I aim to re-sell, that's no problem as I'll have the purchase cost for the stock, but say I bought a pack of cards for £4 and there's 10 cards inside, would the purchase cost for each card be 40p? Or would a rough market value be better, because I could open it and potentially get a card form the pack that's worth £50.

I'd also like to put in a bit of start-up money, probably around £200, so I can start buying more stock. How would I log this using cash basis?

Lastly, for cash basis accounting, what figures are needed in the self-assessment? Is it just money received and expenses paid out? I'll be keeping evidence of everything sales and purchases-wise in case there are any issues.

Any other general info on what type of things to log and the best way to do so would be massively helpful too as this is all new to me! I know i'm not at the point where I need to sort all this but the way it's going I will be and I'd rather get prepared now rather than panic later.

Cheers!

 

[Scalloway]

For the stock I would just use a global figure for your opening amount. I would show it as an expense on the first day of trading.

I'd also like to put in a bit of start-up money, probably around £200, so I can start buying more stock. How would I log this using cash basis?

You ignore it unless you have a Balance Sheet.

Lastly, for cash basis accounting, what figures are needed in the self-assessment? Is it just money received and expenses paid out?

Yes

 

[JoshWinnard]

For the stock I would just use a global figure for your opening amount. I would show it as an expense on the first day of trading.

You ignore it unless you have a Balance Sheet.


Yes

Would that be classed as an expense though? I can come up with a rough figure for it all based on market value, but no money will actually be paid out?

I was planning on putting together a balance sheet, just for my own use to keep track of things a little better.

 

[Scalloway]

Would that be classed as an expense though? I can come up with a rough figure for it all based on market value, but no money will actually be paid out?

If you were doing accrual accounting it would be classed as Capital Introduced. If you don't put a value on it you will be taxed on every penny you get from selling it.

Plucking a figure from the air of £500 for your existing collection just to show how a Balance Sheet would look under accrual accounting.

Assets
Stock £500
Cash £200
TOTAL £700

Financed by
Capital £700
TOTAL £700

 

[JoshWinnard]

If you were doing accrual accounting it would be classed as Capital Introduced. If you don't put a value on it you will be taxed on every penny you get from selling it.

Plucking a figure from the air of £500 for your existing collection just to show how a Balance Sheet would look under accrual accounting.

Assets
Stock £500
Cash £200
TOTAL £700

Financed by
Capital £700
TOTAL £700

Yeah okay. Could i technical buy the stock off my myself so theres a transaction shown to prove the stock purchase expense? I want to use cash accounting so im just trying to figure how to get the start up stock in with a value so that like you say, i dont get taxed on it all.

I still think the value of cards is a grey area too, like i said in the original post about the varying values if i sold singles cards i bought from a £4, 10 card pack. Say i pulled a card from that pack that i sold for £100, technically that card only cost me 40p so id be paying loads of tax. Whereas say the average market value is £80, that would save a massive amount.

Thanks for the help btw, all this is useful!

 

[Scalloway]

Could i technical buy the stock off my myself so theres a transaction shown to prove the stock purchase expense

Yes. What I would do is draw up a list of what you are transferring to the business.

You are right. The valaution of the cards is a grey area. You will only get the correct value when they are sold. That is why I suggest a single global figure rather than individual values.

 

[JoshWinnard]

Yes. What I would do is draw up a list of what you are transferring to the business.

You are right. The valaution of the cards is a grey area. You will only get the correct value when they are sold. That is why I suggest a single global figure rather than individual values.

Right im with you. I’ll make list like you say and put a rough figure to it and count that as an expense day one. I keep thinking of its a cost per card, but thats only going to be relevant if i buy a single card to sell, my example of buying a £4 pack to sell early, the expense would just be £4 for stock.

Just to be sure, HMRC definitely recognises stock purchased for resale as an expense?

My last question, is say in two years time i decide to pack it in, what would i do if my expenses outweighed the profits overall? Because ideally with any profits id like to keep reinvesting in higher quality stock. And what would happen to the stock left over? Could i just keep it as a loss or would i get taxed on its value?

Thanks!

 

[Scalloway]

Just to be sure, HMRC definitely recognises stock purchased for resale as an expense

Yes. Sales less purchases of stock gives you your gross profit. Deduct other expenses to give your taxable profit.

And what would happen to the stock left over? Could i just keep it as a loss or would i get taxed on its value?

You would get taxed on the value of unsold stock when you close the business.

 

[JoshWinnard]

Yes. Sales less purchases of stock gives you your gross profit. Deduct other expenses to give your taxable profit.

You would get taxed on the value of unsold stock when you close the business.

Right okay, i guess thats just to stop people endless using the profit to buy stock and then recording it as an expense to avoid paying any tax.

I do have a few more questions that have come to mind tonight unfortunately haha. My understanding of cash basis is that i record the income when i receive it, now as its going through ebay, would that be when the buyer pays ebay, or when ebay transfers the money to me? Its usually the next day, but they automatically deduct fees and refunds etc before I receive the money in my account. I was thinking of it like, the gross income is what the buyer pays ebay (and I record the transaction as the day the buyer paid) and then i record any refunds and deduct the eBay fees as an expense, is that correct?

And lastly, this ones about when i hit the £1000 tax free threshold. From what ive read you can’t claim that and expenses, so is it at the that point (when i hit 1000 in gross income) that i decide which id rather do? I think expenses would be better for me because the profit margins can be quite small, and obviously i’ll have already been keeping record of it all.

Thanks again for all your help, this has been beyond helpful!!

 

[Scalloway]

the gross income is what the buyer pays ebay (and I record the transaction as the day the buyer paid) and then i record any refunds and deduct the eBay fees as an expense, is that correct?

That is correct.
I would take the day the seller pays ebay as the date of sale but it only really matters on the last day of the tax year.
The £1,000 allowance came in after I stopped working with tax so I can't comment on that.

 

[JoshWinnard]

That is correct.
I would take the day the seller pays ebay as the date of sale but it only really matters on the last day of the tax year.
The £1,000 allowance came in after I stopped working with tax so I can't comment on that.

Yeah okay. I’ll just keep a record of expenses then when i do go past £1000 i’ll have a record of it all either way.

Also, after mulling it over, i think with regards to my starting inventory, im just going to class it as how i would if i put money in (capital introduced as you referred to it) and not claim it as an expense day one. Purely because i doubt the majority will sell well/fast and i don’t want to be in a position where my expenses take over my profit if i call it quits early. I’d rather pay tax when it sells than pay it on stock left over with little value, a lot of it is bulk i’d rather be rid of, but any money made on it can be put towards something better.

Thanks for all the info, definitely feel like ive got a better grip on everything now!

 

[BusterBloodvessel]

I think you are over-complicating/confusing yourself a bit around the stock and expenses situation. Does this old thread help?

Sole Trader - Very basic question on doing accounts

Hi all, I wonder if anyone can help. I have been trading on ebay for two years. I started with a couple of hundred pounds and over the last two years have put all profit straight back into the business by building up the stock. I'm now in my third year and now have a good level...

www.ukbusinessforums.co.uk

 

[JoshWinnard]

I think you are over-complicating/confusing yourself a bit around the stock and expenses situation. Does this old thread help?

I know im definitely over thinking, but i just want to be absolutely sure, but to be honest this thread may have confused me more hahaha i think this is more accrual based? Seeing as im doing cash, is it not a case of claiming the purchase of stock as an expense when i pay for it instead of when the item sells? Because if its when the item sells that i claim the expense, that opens the whole can of worms with valuing individual cards bought in multi-packs years prior.

 

[campbeji]

Hi Josh,

I'm maybe missing the point here, but why do you want to transfer your existing collection to the business? You currently own them yourself and are allowed to sell them for whatever you want to sell them for, but since you did not buy them to sell you are not going to be liable for tax on them. At least as I understand the rules. It's the same as anything you sell of your personal items, ie a Christmas present you didn't need, you would not have to pay tax on that.

Personally i'd just keep selling them, maybe document what you have before you start the new business (a list and photos etc) and don't get them mixed up with stock that you buy to sell.

If you transfer them to the business you will be liable for tax on the difference between what you pay yourself and what you eventually sell them for.

As always, treat my advice like you got it of some guy on the internet

Good Luck
Jim