Etsy Seller Tax UK 2025/26: What You Owe HMRC
Etsy sellers are almost always trading by HMRC's definition, making things to sell, or sourcing print-on-demand to mark up, is the textbook example of trading income. The "is this taxable?" question that hangs over Vinted and eBay sellers doesn't really apply here. The questions are: how much, what can you claim, and when do you need to file?
The trading allowance for Etsy sellers
If your gross Etsy sales (before Etsy's fees) are £1,000 or less in a tax year, the £1,000 trading allowance covers you. No tax owed, no Self Assessment required.
Above £1,000, you choose:
- £1,000 trading allowance: subtract £1,000 from gross, pay tax on the rest. No expenses claimable.
- Actual expenses: subtract real allowable costs, pay tax on net profit.
For most Etsy sellers earning more than ~£2,000, actual expenses beat the £1,000 allowance because materials, listing fees, transaction fees, postage, packaging, and printer ink add up fast. The calculator picks whichever saves you more.
Etsy expenses you can claim
- Etsy listing fees (£0.16/listing) and transaction fees (6.5% of sale)
- Etsy Payments processing fees
- Etsy Ads (advertising costs are fully deductible)
- Materials, packaging, postage
- Mileage to the post office (45p/mile, first 10,000)
- Software (design tools like Canva, Adobe, Procreate)
- Print-on-demand supplier costs (Printful, Printify, Gelato)
- Proportional home use (use HMRC's simplified rate: £10/£18/£26 per month based on hours)
- Camera/phone for product photography (capital allowance)
- Accountant fees
Print-on-demand sellers (Printful, Printify, Gelato)
POD is treated the same as any other Etsy selling: gross income is what the buyer paid, your supplier costs are an allowable expense. Don't net them off in your records, show gross income and itemise costs separately. HMRC will compare against Etsy's reported data, which shows gross.
Etsy reporting to HMRC
Etsy is a reportable platform under HMRC's rules effective 1 January 2024. If you make 30+ sales OR earn €2,000+ (~£1,735) in a calendar year, your data is reported to HMRC.
Common Etsy scenarios
| Situation | Approximate tax + NI |
|---|---|
| Handmade jewellery hobbyist, £600 gross/yr | £0 (under trading allowance) |
| Print-on-demand t-shirts, £4,000 gross, £2,800 supplier+fees, basic rate | ~£310 |
| Digital art prints, £10,000 gross, £1,500 expenses, basic rate | ~£2,200 |
| Full-time Etsy crafter, £35,000 gross, £14,000 expenses, no other income | ~£2,900 |
FAQs
I sell digital downloads, same rules?
Yes. Digital products (printables, templates, presets) are trading income. The advantage: very low marginal cost per sale, so net profit margins are usually high.
Do I need to register for VAT?
Only if your taxable turnover passes £90,000 over any rolling 12-month window. Most Etsy sellers are far below this. Note: Etsy collects VAT directly on sales to EU buyers, so EU sales don't count toward your UK VAT threshold.
Etsy charges me fees in USD, how do I handle that?
Convert to GBP using the spot rate on the day, or HMRC's monthly average exchange rate, applied consistently. Keep records. Etsy's seller report tools can export in GBP if you set the currency.
Can I deduct the cost of a sewing machine I bought for the business?
Yes, capital equipment used for the business qualifies for the Annual Investment Allowance (£1m cap, so unlikely to be a problem). Claim the full cost in the year purchased, provided it's wholly for business use. Mixed use means you can only claim the business portion.