eBay sellers are next to fall under scrutiny by the HMRC as part of their latest efforts to tackle tax evasion and claw back £7bn in unpaid VAT and taxes a year by 2014. The impact of this campaign is still yet to be determined but it will undoubtedly result in a number of eBay businesses experiencing heightened cash flow difficulties.
The severity of e-sellers not disclosing taxes can easily become a harsh reality. In November 2011, Gregory Allnutt from Croydon was sentenced to 20 months imprisonment following a criminal investigation. The investigation found that he had evaded paying taxes of £430,000 while selling electronic goods through eBay.
Access to working capital continues to be a key challenge for online sellers looking to grow their business. Together with dwindling overdraft balances, the looming payments to the taxman will put even more pressure on their financial position. iwoca, a financial start up providing instant working capital to online sellers in the UK, estimates this campaign could generate £40 million for the taxman.
The majority of e-sellers have limited or no access to business loans due to banks being unable to fairly assess the value of their business. As opposed to manufacturing companies, e-sellers have frequently changing inventory levels that provide little security for a bank. To make things worse, banks continue to be in deleveraging mode and, according to the Bank of England, from December 2008 to December 2011 the stock of bank lending to companies shrank by £151bn.
Even though the ecommerce sector is expected to grow by 15 – 20% per annum over the next five years, the double burden of large outgoing tax payments and no access to finance will make it impossible for thousands of sellers to grow their business in the long term.
However, iwoca represents hope to these e-sellers. Where high street banks stop short, iwoca fills the gap by offering working capital financing of up to £20,000. With the standard term being three months, the application to approval process is quasi-instant with funds being transferred to successful applicants within the same day.