If you are making a profit of over £1000 per annum flipping motorcycles you will have to notify HMRC and pay tax on any profits. But if you make under £1000 HMRC have introduced a tax free allowance to cover “self-starters” with small, hobby-based businesses.
So if you flip a motorcycle and make a profit of less than £1000 you are not liable for any form of tax whatsoever and you don’t even need to report it. HMRC run a similar allowance for rental properties.
What is the Tax-free allowance on trading?
Introduced in 2017 the tax-free allowance allows you to make up to £1000 annually without the need to pay any tax. The tax-free allowance applies to both property or any trading income. If you have both types of income, you’ll get a £1,000 allowance for each. Meaning if you also rent property as a side hustle you can earn up to £1000 on that hustle and also pay no tax.
It should however be noted that the allowance applies to the Gross income, meaning the total amount you would put on your tax return before any allowances or expenses are taken off. So you cannot deduct expenses. You can learn more on the HMRC website – Tax-free allowances on property and trading income.
What if I earn more than the tax free allowance?
If you are earning more than the tax free allowance then you’ll need to register for Self Assessment and pay tax on any profits you make. You’ve got two choices from then on; you can either deduct the £1,000 allowance from your gross income and pay tax on the remaining, or you can deduct allowable expenses from your gross income, like businesses normally do and pay tax on the profits that are left.
You might want to work out which one is most tax efficient for you by totalling all of your expenses, and if they are less than the trading allowance, then using your trading allowance against tax will be more beneficial.
How do I setup as a business?
If you’re thinking about starting your own motorcycle flipping business or becoming self-employed, you will need to think about your business structure. The motorcycle flippers are choose one other the two below. But do some research and decide which model is best for you.
This is the simplest form of self-employment. You will run the business as an individual and keep any post tax profits. However, your personal and business assets are not separate. This means you’re personally responsible for debts associated with the business. A sole trader is just that, you, working for themselves. This is the most common way of operating a small business. To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs.
Private limited company
A private limited company, is a separate legal entity and is completely separate from the person owning and running it. The company will have a director (yourself) who is responsible for running the company, and at least one shareholder (again yourself). The company will need to submit its annual accounts to Companies’ House and a tax return to HMRC. The director will also need to fill in a Self Assessment tax return, but will only pay tax on the money they earned by running the business, not the overall business profits.
Accounts, VAT and record keeping
We recommend seeking out the advice of an accountant at the very beginning. They can advise on what records you need to keep, VAT registration and help you understand your tax liabilities. Tax’s on a self-employed persons earnings are payed in arrears, typically 1-2 years after the profit has been made. So you will need advice on how manage cashflow and prepare this.
If you are a sole trader, you do not legally need to have a business bank account. But I would advice getting one anyway. It allows you to keep your business and personal finances separate. Makes record keeping easier and makes the business look more professional. If you are a running as a limited company you do need to have a business bank account. But again speaking to an accountant for advice.
If you have just flipped a motorcycle or sell the occasional cheapie then you probably don’t have to worry about paying tax. You also don’t need to pay any tax if you have sold your own personal vehicle at a loss. But if you are regally flipping and trading in motorcycles you register with HMRC as soon as possible. If you are thinking you can get away with selling a large number of motorcycles without paying tax then you are deluding yourself and setting yourself up for problems down the road. Modern data sharing between HMRC and the DVLA means you will eventually be found out and prosecuted, which could lead to large fines, penalties or even a prison sentence.
So start out the right way and you can earn good legitimate money flipping motorcycles as either a side hustle or a full-time job. If you are just starting out and aren’t sure what to do start here with our Motorcycle flipping business plan.