You opened your Etsy shop because you’re good at making things. Tax was probably the last thing on your mind.
That’s entirely understandable. But at some point, if the sales start coming in, you’ll need to know where you stand.
Here’s a plain-English guide.
The key question: are you trading?
HMRC considers you to be trading if you make or buy goods with the intention of selling them for a profit. If that describes your Etsy shop — whether you’re making handmade candles, prints, jewellery, or anything else — then your Etsy income is trading income. (HMRC — Check if you need to tell HMRC about your income from online platforms)
The £1,000 trading allowance
Every individual has a tax-free trading allowance of £1,000 per tax year. If your total trading income from all sources — including Etsy — stays below £1,000 before expenses, you generally don’t need to report it or pay tax on it. (HMRC — Check if you need to tell HMRC about your income from online platforms)
Remember: that £1,000 covers all your trading activity combined. If you also have another side hustle or sell on another platform, all of it counts together.
What happens when you earn more than £1,000?
You’ll need to register for Self Assessment and complete a tax return. This is how HMRC collects income tax on self-employed earnings. The good news is that you are taxed on your profits, not your total income. That means you can deduct allowable business expenses before working out what you owe. (HMRC — Expenses if you’re self-employed)
For an Etsy seller, allowable expenses might include the cost of materials used to make your products, postage and packaging, Etsy fees, and equipment used specifically for your business.
You cannot claim expenses if you’re using the £1,000 trading allowance instead. It’s one approach or the other. (HMRC — Expenses if you’re self-employed)
Etsy now reports your income to HMRC
Since January 2024, digital platforms — including Etsy — are required to collect seller information and report income to HMRC for sellers who meet the reporting threshold. (HMRC — Selling online and paying taxes information sheet)
This doesn’t mean you automatically owe tax. It does mean that keeping accurate records of your income and costs is more important than ever.
Keep good records from day one
You don’t need complicated accounting software to get started. A simple spreadsheet recording your sales, the cost of materials, and any fees you’ve paid will serve you well. HMRC requires self-employed people to keep records that support their tax return. (HMRC — Expenses if you’re self-employed)
Getting into the habit early saves a lot of stress later.
Not sure where you stand right now? Use HMRC’s free online checking tool to find out.
If you find you do need to register for Self Assessment, the next post in this series explains exactly how that process works.
Use our free UK side hustle tax calculator to estimate your Etsy tax bill in seconds.