It’s quite common these days for people to hold down more than one job. Times are tough and needs must, which explains why Sage reported in 2024 that 70% of young people have multiple income streams. One of the more popular ‘side hustles’ in the UK is trading online through marketplaces like eBay, Facebook, and, of course, Etsy.
But what is “Etsy tax”? And do all Etsy sellers have to pay tax on their online earnings? With nearly 50 years of experience in local and international accounting, the team here at UWM has put together this handy guide to Etsy tax to answer these questions.
Contents:
- An introduction to Etsy tax for all types of seller
- Understand selling on Etsy and taxes for different types of sales
- When to declare your Etsy income and how to pay tax on it
- Conclusion: Is it worth hiring an accountant to help with Etsy tax?
An introduction to Etsy tax for all types of seller
‘Etsy tax’ is actually a bit of a misnomer, because there’s no specific tax on Etsy sales in the UK. Instead, ‘Etsy tax’ is the same type of tax which might affect sellers on eBay, as well as traders at traditional, in-person markets. It is a combination of the Income Tax and Capital Gains Tax you may owe to HMRC on the money you make from selling stuff, either casually or on a more serious basis.
The percentage of ‘Etsy tax’ you’ll owe on your trading income will depend on various factors, including: your current Income Tax Band, whether you have deductible expenses, and the nature of your online selling.
As HMRC updates the way we report and pay our taxes with Making Tax Digital (MTD), and sites like Etsy are required to report transactions directly to the UK tax authority, side-hustlers on Etsy can no longer afford to ignore their potential tax obligations.
Understand selling on Etsy and taxes for different types of sales
Whether or not you’ll have to pay tax on Etsy sales really depends on the type of trading you’re conducting on the platform, as well as elsewhere. The more money you make, the more professional your trading presence is, and the more additional income streams you have, the more likely it is you will be obliged to pay at least some tax on your Etsy income.
Here we examine the three most common types of online seller profile, and how each seller’s activities affect their tax obligations.
Seller A) The casual seller of second-hand stuff
One of the most common uses of online marketplaces is for getting rid of unwanted possessions. Whether you’re moving house, you’ve inherited someone else’s possessions, or you just no longer love that leopard-print polo neck you bought on a whim in your 20s—selling online is often about finding a new home for a previously-beloved item.
Typically, casual sellers of second-hand stuff will not have to pay tax on their Etsy sales, because the transactions tend to be infrequent and not for profit. Though there are exceptions to the rule, the casual Etsy seller probably needn’t worry about Etsy tax.
Example: Julia from Leeds has inherited her gran’s old tea set and decides to sell it on Etsy. The set sells for £100 which Julia gets to pocket tax-free and which she does not need to declare.
Capital Gains Tax (CGT) and selling personal items on Etsy
It’s worth a quick aside here to note that some larger sales on marketplaces like Etsy will be flagged for Capital Gains Tax, whether or not you’re just a casual seller. Any personal items (excluding cars) sold for more than £6,000 are subject to Capital Gains Tax, wherein you will pay a percentage of tax on the ‘gains’ or ‘profits’ made from the sale, after your tax-free CGT allowance of £3,000 a year is taken into account.
Seller B) The side-hustler selling for profit
Perhaps the most common use of online marketplaces is for “side-hustle” selling. A side hustle is anything that makes you extra money in addition to your core income stream. For example, DJing at clubs on the weekend, selling your art online, driving an Uber or tutoring students.
Side hustlers tend to sell more and more often on online platforms like Etsy, where they maintain a fairly consistent stream of sales to supplement the earnings from their day job. As such, there’s a good chance they will be required to pay tax on those earnings.
Example: Mohammed from rural Yorkshire works full-time as an IT consultant but likes to trade vintage vinyl in his spare time. After accruing a reputation for high-quality rare pressings of 1970s Northern Soul records on Etsy, Mohammed’s side hustle takes off. His reputation and sales figures make it likely that he’ll have to declare his Etsy income to HMRC, register for Self-Assessment, and pay Income Tax on his Etsy sales in addition to the tax he pays at his IT job.
Seller C) The full-time trader with Etsy as a core income stream
Lastly, there are full-time traders. In cases where you make all or almost all of your income from selling on Etsy, it is almost guaranteed that you will have to pay ‘Etsy tax’ on your earnings—certainly, you will have to register for Self-Assessment and declare your earnings to HMRC regardless.
Example: Mark is a graduate painter from York School of Art who, in addition to selling the odd original through gallery exhibitions, sells prints of his work on Etsy. Mark’s paintings have become so popular that he makes almost all of his income from Etsy sales. He must report these earnings to HMRC and must consider whether he falls within the scope of Making Tax Digital filings, depending on his level of qualifying income and pay tax on them.
When to declare your Etsy income and how to pay tax on it
Unless you are the most casual of online sellers, you will probably have to at least report your Etsy earnings to HMRC, if not also pay tax on them. Failure to report or pay tax on Etsy earnings could land you in trouble, likely triggering a nudge letter from HMRC, such as those they send to eBay sellers they believe are avoiding tax.
In this section, we’ll explore what tax-free allowances and expenses can be applied to your Etsy income, the other metrics HMRC uses to determine your tax liability, and how VAT applies.
Your tax-free trading income allowance
Every UK taxpayer gets an annual tax-free trading allowance of £1,000. This means you can make up to £1k from trading without having to declare it as income or pay tax on the earnings. Thus, if you make less than £1,000 per year from Etsy and your other trading outlets combined, you don’t have to pay tax.
Your personal income-tax allowance
Most UK taxpayers get an annual personal income allowance of £12,570, meaning the first £12,570 earned each year is not taxed. Once your income surpasses £12,570 per year, however, the excess amount will be taxed at a percentage rate, depending on your unique tax band (note: Income Tax Rates differ between Scotland and the rest of the UK).
If you’re employed by a company that withholds income tax and National Insurance for you (i.e., a PAYE employer), then how you handle your Etsy income depends on how much money you make on the marketplace each year. If you make less than £1k on Etsy, you can use your trading allowance to cover it. If you make more than that, however, you’ll have to register for Self-Assessment and report these earnings to HMRC, who will then help you calculate whether you owe tax on them, or if they’re covered by any remaining income tax allowance.
If you’re already self-employed, then you will have to report your Etsy earnings in your annual Self-Assessment tax return. Whether or not you pay an Etsy tax on them depends on how much you’ve made from your other income streams once allowable expenses are deducted.
Lowering your Etsy tax bill with allowable expenses
Speaking of expenses, you are allowed to deduct certain expenses from your annual trading income before that income is taxed. Deducting expenses leaves you with a final amount of ‘taxable income’ which HMRC will tax at your income tax rate—usually 19-48% in Scotland, 20-45% in England, Northern Ireland and Wales.
You can choose to deduct your £1,000 tax-free trading allowance or allowable expenses from your gross trading income, before paying tax, but not both—you should choose whichever is greater for maximum tax efficiency.
Allowable expenses can include:
- Etsy fees:
- Product listing fees
- Transaction fees
- Shop account subscription fees, etc.
- Postage and courier costs
- Packaging costs (envelopes, boxes, tape, etc.)
- Stationery costs (a printer, printer paper, labels, ink, etc.)
An exception to the rule: HMRC’s ‘Badges of Trade’
The main metric deciding whether or not you’ll owe tax on your Etsy income is, naturally, the amount of money you make.
However, HMRC also has what it calls its ‘Badges of Trade’. These badges are indicators rather than fixed rules. HMRC considers them collectively, alongside the wider facts, when deciding whether an individual is trading.
HMRC Badges of Trade include:
- The intention to turn a profit on a sale
- High numbers of, or high-quantity transactions
- The similarity of your sales to other known traders on a given site
- Changing or modifying products to raise their sale value
- Borrowing or receiving money from investors before selling
- Little time between purchase or receipt of a product and its sale
If your activity on Etsy triggers any of these badges, HMRC may get in touch to make sure you’re not avoiding tax, but this does not automatically mean you owe tax, as liability depends on whether your activity results in taxable profits after allowances and expenses.
How VAT applies to Etsy sales and taxes
Value-added tax (VAT) is a tax on UK consumer spending, which is collected from the buyer by the seller and passed on to HMRC.
Thankfully, it’s unlikely—even as a full-time Etsy seller—that you’ll have to worry about VAT. This is because you only need to be VAT-registered if you/your business has an annual turnover exceeding £90,000.
Nevertheless, you can voluntarily register for VAT if you think it would be helpful—e.g., in order to claim back the VAT on an expensive laptop you bought to use for selling on Etsy.
Conclusion: Is it worth hiring an accountant to help with Etsy tax?
Etsy tax is just another term for the type of tax some traders have to pay on the money they make selling at markets, both offline and online, including through sites like eBay and Etsy.
Knowing when your Etsy sales become taxable is key to avoiding costly financial or legal repercussions, such as nudge letters from HMRC, as well as for lowering annual tax bill(s).
With this guide, we hope you’re now better equipped than before to tackle your Etsy sales and their tax liability.
Of course, if you think you could be saving more money on tax, or are worried you’re missing something important, you can always turn to your local tax professionals for a friendly word of advice.
