Rhodri Marsden: Cyberclinic

What's the tax rule for on-line traders?

BUSINESS VERSUS PLEASURE

Q. I've begun trading quite a lot using eBay and PayPal, and have started to wonder about tax implications. Do any readers have similar concerns?

A. There's no doubting the addictive properties of eBay: thousands of people seduced by the thrill of the auction. The tie-up between eBay and PayPal, the on-line payment system, has led to large numbers of eBay transactions taking place in an internet bubble, completely separate from the "real" world of cheques and bank transfers. "It doesn't seem like proper money," writes Rich Lockwood. "I never withdraw PayPal cash to my bank account, so it's a separate fund which I just use for buying things online." A huge amount of money is shunted via PayPal - some $8.7bn (£4.6bn) so far and growing by 37 per cent a year - but most correspondents aren't worried about their personal tax implications. "I love using eBay and PayPal," writes Rosie Gilchrist, "but I don't make a profit, and it just feels like I'm in an enormous car-boot sale."

But how do you know whether you've made the step from cyber-boot-sale addict to taxable trader? If the profits are pouring in then it's probably obvious, but the full list of conditions are known as the "badges of trade", which are listed in full on the HM Revenue & Customs website, or can be seen at www.tinyurl.com/eo58k. Patrick O'Brien from HMRC warns that the internet is no different to the real world when it comes to tax: "If someone is regularly selling items on the internet they could be acting as a business and may have a responsibility to register with us." So it's up to you to monitor your own eBay activity, and speak to your tax office. PayPal's Cristina De Parres says: "If the authorities came to us and wanted to investigate a particular account, we would be obliged to hand over the information." After all, you wouldn't want to incur the wrath of reader Gerald Haigh, who urges you to go legit: "Because people like me, who declare every penny, will be miffed if you don't."

Diagnosis required

Next week's question comes from Nina McDonald:

"I've had some huge mobile phone bills recently after using my phone abroad. Will the prices ever come down, and does technology offer any way around the problem?" Any comments, and new questions for the Cyberclinic, should be emailed to cyberclinic@independent.co.uk.