Laws On Reselling Business Products UK

There is some confusion surrounding the term “reselling”. Whereas many would simply describe it as buying and selling items, it’s more specific than that. It’s a systematised business model that revolves around buying items for a set price in one place and then selling them for a higher price elsewhere. Whether a business or a sole trader making a side income, reselling is an expansive enough craft that nearly anybody can find their niche within it.

But what are the laws that govern reselling items, and how do you navigate them? In this article, RealBusiness will outline these specific laws across multiple platforms.

Is reselling illegal?

No, reselling is not illegal. Of course, the term “reselling” assumes you’ve lawfully purchased the goods in question, and is considered a completely legal business practice in the UK. The following are the main regulatory frameworks that govern them:

1. Consumer Rights Act 2015 – Ensures resold products are of satisfactory quality, fit for purpose and as described.
2. Consumer Protection from Unfair Trading Regulations 2008 – Bans all unfair, misleading and aggressive commercial practices in B2C dealings.
3. Competition Act 1998, Chapter 1 – Prohibits hard-core vertical restraints, including minimum resale price maintenance.
4. VAT registration (VAT Act 1994) – Ensures VAT registration for taxable turnover exceeding £90,000 in any 12 months.
5. Sector-specific licenses – Goods such as alcohol, tobacco and e-cigarettes require specific licenses and adherence to the Licensing Act 2003’s premises, personal-licence and mandatory conditions rules.

What business model is best for a reselling business?

The business model that is best for a reselling business not only outlines liability, but also dictates whether any additional frameworks will be applied.

• Sole trader – Approximately 6 million UK resellers are sole traders. It is perfect for hobbyists or side-hustlers who use other platforms, such as eBay, to resell items. It’s easy to get started, not even needing to register for self-assessment taxes until you earn over £1,000 a year.
• Partnerships – Approximately 36,000 UK reseller businesses are partnerships. A partnership pools its resources to source and resell items. Responsibility, liability, profits and losses all flow through to partners’ returns. Best for niche items where specialist knowledge and technicality can shine.
• Limited companies – Approximately 100,000 limited companies are reseller businesses. Limited companies shield a person’s assets from large-scale stock investments or counterfeit claims, and pay lower taxes than the higher bands of sole traders. Perfect for reseller businesses that are looking to turn full-time, and have the capacity to gather the application materials and staff.

Reselling business as a sole trader

A sole trader is an individual operating under their name, or a business owner operating under a registered business name. This is an important distinction, as operating as a sole trader means you have full and unlimited liability. Your business and personal finances are inseparable, and if you encounter legal issues or debt, it is you, not a company, who will have to face the music.

The following lists a sole trader’s specific obligations:

• Income Taxes – All profit generated from your reselling business is liable for income taxes. They will be calculated through the annual HMRC self-assessment process, requiring you to track business income, allowable expenses, and relevant tax breaks. Pay income tax at your rate (20 – 45%), plus any reliefs you can claim.
• VAT – If your reselling business’s turnover hits £90,000 in any rolling 12 months, you will be charged 20% VAT on each sale under your own name or trading name. You can reclaim VAT on what you’ve paid on your purchases, such as stock, shipping and tools.
• National Insurance – HMRC treats your reselling profits as personal earnings and collects NI via self-assessments. You will either be in Class 2 NI (£3.45/week) if profits are below £6,725 a year, and Class 4 NI on profits between £12,570 – £50,270 (and 2% above).

Reselling business as a limited company

A limited company is useful for business models that foresee long-term business activity and want to take advantage of its separate legal entity status. This means the company, not the person, is liable for all debts. Limited companies also have fantastic tax implications when making the switch from a high sole trader tax band.

To become a company, a sole trader has to:

• Register – Companies House in the UK is the official portal for those wanting to transform their business into a company. You will need to submit specific documents, appoint a company director, and pay fees.

The following are what you can expect to change between legal considerations you should make as a company versus a sole trader:

• Corporation tax – A company is subject to corporation tax, which can be lower than income tax when you earn a certain amount.
• Dividend Tax – The company director has heightened flexibility when it comes to paying salaries versus dividends.
• Annual Accounts – Financial accounts and company updates must be submitted yearly to maintain legal company status.
• Records – You are expected to keep meticulous records of income, expenses, assets, etc.

Limited Company Legislation

Companies are overseen by shareholders and directors. As a result, it’s important to note that all legislation previously talked about also counts here, but with regular compliance checks.

Furthermore, there are additional legislations to follow as a limited company:

• Second-hand margin scheme – When reselling items bought from non-VAT suppliers, you charge it only on your profit margin. Keep separate margin records for each purchase lot and sale batch.
• Alcohol wholesaler registration scheme – Ltd companies buying alcohol for reselling, even if it’s just bottles. Trading without AWRS risks civil penalties up to £10,000 per offence.
• Producer responsibility obligations regulations 2007 – A limited company that places packaged goods onto the UK market above the small-producer thresholds must fund and evidence the recovery/recycling of its packaging via PRNs/PERNs or a compliance scheme.
• Waste Electrical and Electronic Equipment Regulations 2013 – A Ltd company reselling items that are EEE to end users is deemed a producer, and must help finance the collection, treatment and recycling of WEEE.
• Waste batteries and accumulators regulations 2009 – A ltd that places batteries on the UK market is a producer and must fund and organise separate collection and recycling.
• Money laundering, terrorist financing and transfer of funds regulations 2017 – A ltd that accepts or makes cash payments less than £10,000 in exchange for goods is a high-value dealer and must register with HMRC for AML supervision.

Laws and regulations on using an Online Store

Reselling items via an online store, also known as e-commerce reselling, is one of the most common ways that reselling businesses make their money. Online marketplaces like eBay and Depop provide resellers with platforms to reach a wider audience, sometimes internationally, thereby increasing sales far beyond what a garage sale could. Additionally, cross-listing items on multiple platforms can maximise exposure and increase sales, although it requires more monitoring to ensure items can be delisted once bought.

Online reselling is highly convenient, but it’s important to understand that the store itself is protecting both buyers and sellers, with buyers typically being favoured in most cases.

An online store will mandate that the following be complied with:

• Consumer Contracts Regulations – A core set of rights is imposed on online stores to ensure that clear product descriptions, alongside all necessary information (costs, contact details of seller, cancellation policies) are present for each purchase. Furthermore, all buyers are entitled to 14 days of “cooling off”. This means they have the right to change their minds within 14 days for a full refund, with there sometimes being exceptions for perishable goods.
• Distance Selling Regulations – For products bought at a distance, without the opportunity to see the product beforehand, a list of details is required via legislation, such as the item, its cost, and the contact information of the seller.
• E-commerce Regulations – The geographic address of your business must be provided on the online store, should you sign up with one, alongside a working email address that a customer can reliably reach people on for support.
• Data Protection Act – The online store is considered liable for any leaking of private information given by customers.

Should I create my online store?

If you want to create your online store to sell online, understand that you will be expected to comply with the above as well. Modern web development provides many features to help follow legislation compliance.

Starting an online business and making online sales your focal point can be a profitable venture with relatively low startup costs and high growth potential.

What you cannot do as a reselling business

There are some things in the UK that you cannot do as a resale business owner.

It is crucial to remain compliant with legal rules and regulations to avoid severe penalties and ensure smooth business operations. It is illegal to resell certain items, such as counterfeit goods or restricted products, and doing so can result in severe penalties.

• Selling Restricted Goods – The sale of restricted goods in the UK is a no-go and can come with serious charges, depending on the goods involved.
• Counterfeit Goods – Counterfeit goods can be things such as fake items, such as fake Gucci bags, or video games that have been pirated onto disks. Reselling counterfeit items can come with serious fines, especially when it affects the bottom line of powerful companies.
• Age Restricted Items – Items such as cigarettes and alcohol can only be sold to adults. You can potentially lose licenses by putting young people in danger by exposing them to such items.
• Dangerous Goods – Goods such as chemicals or even something as benign as batteries can come with serious penalties, but only when you sell products without properly securing or making checks on them.
• Misrepresenting Products – The misrepresentation of products can cause massive damage to your business. Misrepresentation typically only applies when a trader hides major flaws with a product that shouldn’t otherwise be there, such as saying a phone is of good quality when the screen is scratched. Ensure that the description is accurate and is backed up by photographs of the items.
• Violating Intellectual Property – Unless you are explicitly permitted by the brand, using trademarks or violating copyright law can lead to severe fines and interruptions in business.
• Unethical Practices – Not all unethical practices are typically illegal. For example, price gouging during shortages, or making fraudulent bids to artificially raise prices.

Conclusion

Overall, a reselling business is a crafty and fairly modern way of being an online merchant. It can serve as a small business that acts as a side gig to a larger job, or can be invested in enough to become something much larger. With dedication and strategic planning, reselling has the potential to transition into a full-time job, offering a significant income or even a career change. With the right strategies and dedication, a reselling business can make money and provide a significant source of income. Overall, most laws surrounding reselling exist to protect the buyer. So long as you keep their interests in mind and ensure clear communication, we can’t imagine many having issues with a resale business.

FAQ – Does a reseller business pay sales tax?

In the UK, we do not have sales tax. However, America does, and when shipping there, you’ll have to navigate the country’s state-level rules. Since the 2018 U.S. Supreme Court decision of South Dakota v. Wayfair, some states may require remote sellers to collect sales tax if they exceed economic thresholds.

The USA market is huge, with over 300 million people, and many of them use online stores to buy items internationally. If you resell items using an online store, chances are they will handle the U.S. sales tax collection for you.

FAQ – What is a reseller permit?

A reseller permit, also known as a resale certificate, resale license or sales tax permit, is issued by a local authority or state that lets a business.