Workers who supplement their income by buying and selling goods via the online auction site eBay have been warned not to neglect their tax liabilities.

Saffery Champness warned that the Inland Revenue is very aware of eBay and its inspectors have been targeting serial eBay users.

Tax partner Ronnie Ludwig noted that with some 25m items for sale, both businesses and individuals are trading enthusiastically on eBay.

For business, it provides a means of shedding unwanted stock, office furniture and out-of-date IT equipment. In this case the tax treatment is straightforward, Ludwig explained.

Items sold on eBay should be entered into the books in the usual way and taken into account in the VAT and income tax or corporation tax returns.

Private sellers are more likely to cross over into the dark side of the eBay economy – or to plead ignorance of the tax rules, Ludwig suggested. Some unwanted possessions, such as inappropriate wedding gifts, can be sold without a tax penalty up to the £6,000 threshold where capital gains tax might become an issue.

But those who buy items on eBay at regular intervals and intend to sell them on at a profit will be considered by the Revenue to fall within its definition of trading – as in the case of one business that is reputed to have earned its founder £70,000 a year from the sale of designer shoes.

Individuals and their advisers must be aware that such activity has to be declared on an annual tax return with tax due on any profits made. Where individual, high value items are not exempt, their disposal may incur capital gains tax at up to 40% on the profit.

The anonymity of eBay may seem like an ideal opportunity to make a fast buck and dodge the taxman, Ludwig said, but the temptation should be avoided. “If you buy goods with intent to sell them (ie. trading) then tax will be due on your profits, and a record of all transactions, virtual or otherwise, has to be maintained,” he said.

“That should not take the excitement out of profiting from this increasingly popular enterprise,” he added, pointing to legendary eBay purchases such as Lady Thatcher’s handbag for £103,000, Joanna Lumley’s £35,000 Ferrari and the most expensive item ever sold on eBay, a $4.9m Gulfstream jet.

A spokesman for eBay told the Times earlier this month: “Transactions between users are private. We cannot be aware whether individuals or businesses are paying tax on any items. As with every business and individual, whether trading on or offline, eBay users are responsible for ensuring that they pay the appropriate taxes on their earnings.”