You've had a decent year on eBay. Stock has come in, items have sold, fees have come off, and now the tax year has closed. The question that trips up most sellers at this point is simple to ask and surprisingly fiddly to answer: do you count the stock still sitting in your spare room, or not?
The answer depends entirely on which basis you use to work out your profit. Cash basis and traditional accruals accounting treat your unsold stock in opposite ways, and choosing the wrong one can quietly inflate the tax you pay.
This guide is for eBay sole traders preparing their own year end accounts and Self Assessment figures. We'll cover what each basis means, how each one handles the stock you haven't sold yet, how to value that stock properly if you do need to, and a worked example so you can see the difference in pounds.
What are year end accounts for an eBay sole trader?
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Your year end accounts are simply the income and expenses figures that feed your Self Assessment tax return. For a sole trader there's no formal filing at Companies House, but you still need an accurate profit figure for the tax year that runs 6 April to 5 April.
If you buy items to resell on eBay with the intention of making a profit, HMRC treats that as trading, and the profit is taxable. Selling off your own old possessions is different and usually isn't trading. HMRC's own guidance confirms that if your total trading income is more than the £1,000 trading allowance for the tax year, you need to tell them about it.
This matters more than it used to. Since 1 January 2024, online marketplaces including eBay report seller data to HMRC under the digital platform reporting rules, so the figures you declare need to line up with what the platform has already shared.
Do I need to count my unsold eBay stock at year end?
The short answer: only if you use traditional accruals accounting. Under the cash basis, your stock purchases are an expense in the year you pay for them, so there's no year end stock count at all.
That single difference is the heart of this whole decision, so let's take each basis in turn.
<h2 id="cash-basis">What is the cash basis and how does it treat eBay stock?</h2>
The cash basis records income when money actually lands in your account and expenses when you actually pay them. You ignore who owes whom at year end. As HMRC puts it, the cash basis is "the standard way to record your income and expenses if you're a sole trader or partnership".
Since the 2024/25 tax year, the cash basis is the default for sole traders. You no longer have to be under a turnover limit to use it, and you have to actively opt out if you want traditional accounting instead. That's a meaningful change from the old rules.
How does the cash basis handle unsold stock?
This is the part eBay sellers love. Under the cash basis you claim the cost of stock as an expense in the year you pay for it, full stop. There's no closing stock figure and no stocktake. If you bought 500 phone cases in March and only sold 200 by 5 April, you still deduct the cost of all 500.
In practice that often pulls your taxable profit down in a year where you've been building up inventory, because you get relief for stock you're still holding.
Are there downsides to the cash basis?
A few worth knowing. Interest costs used to be capped at £500 a year under the cash basis, but that cap was removed from 2024/25, so interest is no longer the sticking point it once was. The bigger limitation is loss relief: under the cash basis you can carry a loss forward against future profits of the same trade, but you generally can't set it sideways against your other income (like a salary) in the same year. Accruals accounting gives you more flexible loss relief.
<h2 id="accruals">What is accruals accounting and why does it count stock?</h2>
Traditional accruals accounting (HMRC calls it "traditional accounting") matches income and costs to the period they relate to, not when cash moves. You record income by the date you earned it and expenses by the date you were billed.
The defining feature for a reseller is the matching principle: you only deduct the cost of stock in the year you actually sell it. Anything unsold at year end gets carried forward as closing stock and deducted next year instead.
How does closing stock work on the accruals basis?
Your cost of goods sold for the year is worked out like this:
Opening stock + purchases during the year − closing stock = cost of goods sold.
So the value of unsold stock at 5 April is added back to your profit. You've spent the cash, but for tax you don't get relief until those items sell. That's why accruals accounting can show a higher profit in a stock-building year than the cash basis would.
The upside is that it gives a truer picture of how the business is performing, it unlocks more flexible loss relief, and it's the basis you'll need if you ever move to a limited company, where cash basis isn't available.
<h2 id="comparison">Cash basis vs accruals: which is better for an eBay seller?</h2>
There's no universal winner. It depends on how your stock and cash flow behave.
| Feature | Cash basis | Traditional accruals |
|---|---|---|
| Default from 2024/25 | Yes | No, must opt out |
| Income recognised | When money received | When sale is made |
| Expenses recognised | When paid | When incurred |
| Unsold stock at year end | Ignored, fully expensed | Carried forward as closing stock |
| Stocktake needed | No | Yes |
| Loss relief sideways vs other income | Generally no | Yes |
| Available to limited companies | No | Yes |
| Record-keeping effort | Lower | Higher |
As a rough rule of thumb:
- Cash basis often suits sellers who are growing stock holdings, want simpler records, and have no employment income to offset losses against.
- Accruals often suits sellers with large, stable inventory who want a true profit figure, who might incorporate later, or who want flexible loss relief in an early loss-making year.
The honest answer for most eBay sole traders is that the cash basis is simpler and the default, but it's worth modelling both in the year you make the switch, because the change can create a one-off timing effect on your stock.
<h2 id="valuing-stock">How do I value unsold eBay stock for my accounts?</h2>
If you're on the accruals basis, you need a closing stock figure. The rule HMRC applies is the lower of cost and net realisable value.
What counts as "cost"?
Cost is what you paid to get the item ready to sell. Per HMRC's Business Income Manual, that's "all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition". For a typical eBay reseller that means the purchase price plus directly attributable costs such as inbound postage, import duty, or refurbishment. It does not include your eBay selling fees or outbound postage, because those relate to selling, not to acquiring the stock.
What is net realisable value?
Net realisable value (NRV) is the estimated selling price less the costs still needed to complete and sell the item. You use NRV instead of cost when it's lower, which HMRC says typically happens because of deterioration, obsolescence, or a fall in demand.
So if you paid £12 for a product you can now only realistically sell for £8 after fees, you value it at the lower figure. You don't get to value stock above what you paid for it just because the market has risen.
What if I bought stock in bulk with no per-item cost?
For mixed job lots, apportion the total cost across the items on a reasonable, consistent basis (often by expected selling value). Keep your working. If you genuinely have no records of cost, you'll need a sensible, defensible estimate, but the burden is on you to support it.
<h2 id="worked-example">Worked example: the same eBay year on each basis</h2>
Illustrative example. Sam is an eBay sole trader reselling refurbished tech, with no other income, for the 2025/26 tax year. The figures below are illustrative.
During the year Sam:
- Received £40,000 in sales (all paid into the account by 5 April).
- Paid £22,000 for stock. Of that, £4,000 of stock is still unsold at 5 April 2026.
- Paid £3,000 in eBay fees, postage and packaging.
- Worked from home 60 hours a month and claims the simplified flat rate.
For working from home, HMRC's simplified flat rate is £18 a month for 51 to 100 hours, so 12 × £18 = £216 for the year.
Cash basis profit:
| Line | Amount |
|---|---|
| Sales received | £40,000 |
| Less stock purchased (all of it) | (£22,000) |
| Less fees and postage | (£3,000) |
| Less use of home (flat rate) | (£216) |
| Taxable profit | £14,784 |
Accruals basis profit:
| Line | Amount |
|---|---|
| Sales | £40,000 |
| Less cost of goods sold (£22,000 − £4,000 closing stock) | (£18,000) |
| Less fees and postage | (£3,000) |
| Less use of home (flat rate) | (£216) |
| Taxable profit | £18,784 |
The accruals profit is £4,000 higher, exactly the value of the unsold closing stock that's added back.
Sam pays tax on each. For 2025/26 the Personal Allowance is £12,570 and the basic Income Tax rate is 20%. Class 4 National Insurance is charged at 6% on profits between the £12,570 Lower Profits Limit and the £50,270 Upper Profits Limit for 2025/26.
On the cash basis, taxable above the allowance is £14,784 − £12,570 = £2,214. Income Tax at 20% is £442.80. Class 4 NIC at 6% on the same £2,214 is £132.84. Total roughly £575.64.
On the accruals basis, taxable above the allowance is £18,784 − £12,570 = £6,214. Income Tax at 20% is £1,242.80. Class 4 NIC at 6% is £372.84. Total roughly £1,615.64.
That's about £1,040 more tax this year on the accruals basis, purely because of timing. The catch: that £4,000 of stock will reduce next year's profit when it sells, so over the life of the business the total tax broadly evens out. The difference is when you pay it. For a seller building up stock, the cash basis keeps the cash in the business for longer.
If you want to sanity-check your own numbers, our self-employed tax calculator gives you a quick estimate, and our guidance for eBay sellers walks through the wider picture.
<h2 id="mtd">What about Making Tax Digital and switching basis?</h2>
Two things on the horizon are worth planning for now.
When does Making Tax Digital affect eBay sole traders?
Making Tax Digital for Income Tax is being phased in by income level. From 6 April 2026 it applies to sole traders and landlords with qualifying income over £50,000 (based on the 2024/25 return). It widens to over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028. Qualifying income is your gross self-employment and property income, not your profit, so a busy eBay turnover can cross the line even if margins are thin. When it applies, you'll keep digital records and send quarterly updates through compatible software.
Can I switch between cash basis and accruals?
Yes, but not casually. You choose your basis on your Self Assessment return, and in the year you switch from cash basis to accruals you have to make transitional adjustments, including bringing in an opening stock figure that wasn't there before. Done in the wrong year, a switch can bunch up tax. This is the moment it really pays to get a second opinion before you file. Zmartly's Self Assessment service handles exactly this kind of judgement call.
Want this taken off your plate?
If you'd rather not second-guess your stock figures and basis choice, book a free 20-minute call with a Zmartly accountant. We'll look at your eBay numbers and tell you which basis leaves you better off this year. Talk to a Zmartly accountant about your eBay accounts.
<h2 id="faqs">Frequently asked questions</h2>
Do I have to count unsold eBay stock if I use the cash basis?
No. Under the cash basis you claim the cost of stock in the year you pay for it, and there's no closing stock figure or stocktake. You only value unsold stock if you use traditional accruals accounting.
Is the cash basis or accruals basis the default for eBay sole traders?
The cash basis has been the default for sole traders since the 2024/25 tax year. If you want to use traditional accruals accounting instead, you have to actively opt out on your Self Assessment tax return.
How do I value unsold eBay stock at year end?
Value it at the lower of cost and net realisable value. Cost is what you paid to acquire and prepare the item, excluding selling fees and outbound postage. Net realisable value is the expected selling price less the costs still needed to sell it, and you use it when it's lower than cost because of damage, obsolescence, or weak demand.
Does the choice of basis change how much tax I pay overall?
Over the life of the business the total tax broadly evens out, because stock relief is simply taken in a different year. What changes is the timing. In a year where you build up stock, the cash basis usually shows a lower profit and defers some tax, which helps cash flow.
Do I need to declare eBay income if it's under £1,000?
If your total gross trading income for the tax year is £1,000 or less, the trading allowance often means you don't have to report it. Once you go over £1,000 gross, you must tell HMRC, and you can either deduct the £1,000 allowance or your actual expenses, but not both.
