As the January financial squeeze tightens, many people turn to online marketplaces like eBay and Vinted to sell unwanted gifts and clear clutter. But for those receiving means-tested benefits, this extra cash can raise important questions about eligibility.
Financial expert and MoneyMagpie Editor Vicky Parry has issued a clear warning to Universal Credit claimants about the rules surrounding selling personal items. Understanding the distinction between a casual clear-out and a business is crucial to avoid benefit reductions or penalties.
What Counts as Income for Universal Credit?
The core principle is that selling your own personal possessions does not count as earnings for Universal Credit purposes. This includes items you bought yourself or received as gifts. You do not need to declare this money as income.
However, the system treats other forms of money differently. Earned income from employment reduces your Universal Credit by 55p for every £1 earned over your Work Allowance. Unearned income, such as a private pension, reduces it by £1 for every £1.
A critical factor is your capital. If you have savings between £6,000 and £16,000, your entitlement reduces by £4.35 for every £250 (or part thereof) you hold over the £6,000 threshold. Money raised from significant sales could push you over this limit.
When Selling Becomes a Business
The situation changes if your selling activity constitutes a trade. If you are buying items specifically to resell for a profit, this is considered a business. You must declare this income to Universal Credit and, if your annual trading profits exceed £1,000, register as self-employed with HMRC and complete a Self Assessment.
Furthermore, online platforms like Vinted and eBay are obligated to report seller activity to HMRC if you make over 30 sales or earn over £1,740 in a tax year. This reporting is designed to catch undisclosed business income, not the occasional seller.
Vicky Parry advises keeping a clear paper trail for any significant sales. This helps prove the money came from selling personal items and not from a business, and also demonstrates you have not deliberately deprived yourself of capital to maintain benefit levels.
Avoiding Deprivation of Capital
Deprivation of capital means giving away or spending savings to stay under the £6,000 threshold and retain full Universal Credit. Using sale proceeds for reasonable needs, like paying off essential debt or replacing a necessary car, is usually acceptable.
However, gifting a large sum from a sale to someone else to stay under the limit would be seen as deprivation and could affect your claim.
Other ways to raise money, such as bank switching bonuses or Help to Save account rewards, are not treated as earnings. They are considered capital, so again, must be declared if they push your savings over the crucial £6,000 line. Refunds and cashback are viewed as discounts or your own money being returned, not as income.
With budgets under pressure, knowing these rules is essential for anyone on Universal Credit looking to make some extra money in the new year.
