Cash Basis Accounting for eBay Sellers: What You Need to Know

Most UK eBay sellers use cash basis accounting. It's the HMRC default for sole traders with turnover under £150,000. Here's how it works for eBay specifically — and why many sellers get it wrong.

Cash basis explained for eBay sellers

Cash basis means you record income when money hits your bank account and expenses when you pay them, not when the transaction happens. For a shop, that's straightforward. For eBay sellers, the payout model creates a layer of indirection that trips people up.

eBay doesn't pay you per sale. eBay pays you as a payout: a net lump sum every few days that bundles together dozens of individual transactions, adjusted for fees, postage, and refunds. Under cash basis, you record this as income when the payout arrives.

The problem is your gross sales and your profit both disappear into a single number.

The two approaches

There are valid ways to handle eBay under cash basis. These approaches differ in accuracy and effort.

Payout-level recording

Record each payout as a single income entry in FreeAgent, dated when it hits your bank. This is simple but loses all transaction detail. You can't see which items sold, what fees you paid, or track profit per item.

Transaction-level recording

Record every sale individually as an invoice in FreeAgent, then match the payout against those invoices. This preserves full transaction detail. But entered manually, it's time-consuming.

Transaction-level recording is the correct approach for accounting accuracy. It lets you track profit per item, see fee breakdowns, and reconcile payouts against invoices. The question is how to achieve it without manual data entry.

Why payout-level recording fails

If you only record the payout amount, you lose:

• Gross sales visibility — you can't report total revenue, only net received
• Fee tracking — eBay fees are legitimate expenses. Netting them off income means you can't deduct them
• Per-item profitability — you can't see which items made money and which lost it
• HMRC audit trail — if HMRC asks to see sales records, payout totals aren't sufficient

Cash basis permits transaction-level recording. The "cash" in cash basis refers to when income is recognised, not how you record it. You can record each sale as an individual invoice dated to the payout date — full transaction detail with correct cash basis treatment.

What FreeAgent shows you and what it needs

FreeAgent can handle eBay sales correctly, but it needs the right data. If you record a £1,000 payout as a single bank receipt, FreeAgent shows £1,000 income — not what lands in your taxable profit after fees.

To use FreeAgent properly with eBay, you need to feed it transaction-level data:

Document type	eBay transaction
Invoice	Every sale — gross amount (item price + postage)
Bill	Every fee (final value fee, promoted listing fee) and postage cost
Credit note	Every refund issued

Each sale becomes an invoice. Each fee becomes a bill. Each refund reverses the original sale. The payout then reconciles automatically because the sum of invoices minus bills matches the payout amount.

How TransactionMerge handles cash basis

TransactionMerge records transactions on the date you specify: sale date for accrual accounting, payout date for cash basis. Since many freeagentsellingon eBay sellers use cash basis, that's the default.

Every night, TransactionMerge syncs the previous day's eBay data to your FreeAgent account. Sales become invoices. Fees become bills. Refunds become credit notes. Payouts reconcile against the document totals.

Sellers choose which accounting method they use at setup and never think about it again.

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