If you sell on Etsy from the UK with a view to making a profit, your profit is taxable. If your total trading income is £1,000 or less in a tax year, the trading allowance usually covers it. Above that, you normally register as self-employed, file a Self Assessment return each year, and pay income tax and National Insurance on your profit after allowable expenses.
This is a general guide to how the system works, not advice for your situation. Tax rules and thresholds change, so check the figures on gov.uk, and speak to an accountant before making decisions about your own tax.
Are you trading, or just selling?
HMRC treats selling as trading when you make or buy things in order to sell them for a profit. Clearing out your loft is not trading. Running a shop of posters, prints or digital downloads is.
For a print seller this is rarely a grey area. If you design artwork, list it, and have it printed when someone orders, you are trading from your first sale.
The £1,000 trading allowance
The trading allowance lets you have up to £1,000 of trading income a year with no tax to pay and no need to tell HMRC, if that is your only trading income.
Two things catch Etsy sellers out:
- It is measured on gross income, not profit. £1,400 of sales with £1,100 of print and postage costs is over the allowance, even though you only made £300.
- It is either-or. Above £1,000 you can deduct the allowance from your income instead of your actual expenses, or deduct your actual expenses, but not both. For print-on-demand sellers, real expenses are usually much larger than £1,000, so claiming expenses tends to work out better. Check both.
Registering for Self Assessment
Once your trading income goes over £1,000, you normally need to register as self-employed for Self Assessment. The deadline to register is 5 October after the end of the tax year in which you started. The tax year runs from 6 April to 5 April.
After that, the main dates each year are:
- 31 January: deadline to file your online return for the tax year that ended the previous April, and to pay what you owe.
- 31 July: the second payment on account, if you have to make them.
Payments on account are the part that surprises people in their second year. If your bill is over a set amount, HMRC asks you to pay towards next year's bill in advance, in two halves, each based on this year's bill. Your first January bill can therefore be this year's tax plus half of next year's. Gov.uk explains when they apply.
Making Tax Digital for Income Tax is also arriving in stages. From April 2026 it applies to sole traders whose qualifying income is above £50,000, with lower thresholds following in later years. It means keeping digital records and sending HMRC quarterly updates through compatible software. Check gov.uk for whether and when it applies to you.
Etsy reports your sales to HMRC
Since 2024, online platforms including Etsy have had to report sellers' income to HMRC each year under the digital platform reporting rules. There is an exemption for very small sellers, but most active shops will be reported.
That does not change what you owe. It means HMRC can compare what Etsy says you sold with what you declared, so keep your own figures and make sure they match.
What expenses can an Etsy print seller claim?
You can deduct costs incurred wholly and exclusively for the business. For a print shop that typically includes:
- Etsy fees: listing, renewal, transaction, payment processing, Offsite Ads, and VAT on Etsy fees if you cannot reclaim it.
- Production: print-on-demand charges, printing, paper, frames.
- Postage and packaging: tubes, mailers, board-backed envelopes, postage you pay.
- Advertising: Etsy Ads and any other paid promotion.
- Software and subscriptions: Photoshop or other design software, mockup tools, listing tools, fonts and stock licences you use commercially.
- Equipment: a computer or tablet used for the business.
- Working from home: either a share of real household costs, or HMRC's simplified flat rate based on hours worked at home.
- Phone and internet: the business share.
What you cannot claim: personal spending, the private share of anything used for both, your own drawings (money you take out for yourself), and fines.
Refunds are handled by reducing your sales, not as an expense. If you refund a £28 order, your income for the year is £28 lower.
Most sole traders now use the cash basis by default, which means you record income when it is received and expenses when they are paid. It is simpler than accruals and suits most Etsy shops.
What records to keep
HMRC expects you to keep records that support your return for at least five years after the 31 January filing deadline for that tax year. For an Etsy shop, that means:
- Etsy's monthly statements and order exports.
- Invoices from your print partner and suppliers.
- Receipts for software, equipment and other expenses.
- Bank statements for the account your Etsy payouts land in.
- Any working you used for home or phone costs.
The easiest way to keep this under control is a monthly routine. The guide to tracking Etsy profit sets out a monthly profit and loss that doubles as your tax record. Using a separate bank account for the shop also helps a great deal.
Sole trader or limited company?
Almost every Etsy seller starts as a sole trader. It costs nothing to set up beyond registering, and the paperwork is one Self Assessment return a year. You and the business are legally the same, and you pay income tax and National Insurance on the profit.
A limited company is a separate legal entity. It pays corporation tax on its profits, and you take money out as salary or dividends, each taxed differently. It needs annual accounts, a confirmation statement at Companies House, a corporation tax return, and usually an accountant.
The tax saving that people expect from a company only appears at higher profit levels, and it can be eaten by the extra costs and admin. Whether it suits you depends on your total income, how much you take out, and how much risk you want to keep away from your personal finances. That is a conversation to have with an accountant using your real figures.
VAT is a separate question
Income tax and VAT are different taxes. You only have to register for VAT once your taxable turnover passes the VAT threshold, which is currently £90,000 a year. Below it, Etsy still adds VAT to the fees it charges you. Selling posters on Etsy from the UK covers how that works, and the VAT invoices guide covers what to do when a buyer asks for one.
How much to set aside each quarter
The tax is based on your profit, so start there. Here is an illustrative example, using 2026/27 rates for England, Wales and Northern Ireland, for a seller with no other income and £20,000 of Etsy profit for the year:
| Line | Amount |
|---|---|
| Profit | £20,000 |
| Personal allowance | £12,570 |
| Taxable at the basic rate | £7,430 |
| Income tax at 20% | £1,486 |
| Class 4 National Insurance at 6% on profit above £12,570 | £446 |
| Total | about £1,932 |
That is roughly 10% of profit. The share changes a lot with your circumstances. If you also have a full-time job that uses up your personal allowance, income tax applies to your Etsy profit from the first pound, at 20% or 40%, so the share is at least double that. Class 4 National Insurance is worked out on your self-employed profit alone, so it only starts once that profit passes the lower limit. Scottish income tax rates are different again.
A simple habit that works:
- At the end of each quarter, work out profit for the quarter from your monthly figures.
- Apply your estimated rate (a higher one if you have a job as well).
- Move that amount into a separate savings account and leave it there.
- Check the estimate when you file, and adjust the rate for the next year.
Remember payments on account when you plan the first January. It is the month most new sellers are caught short.
Where to check and who to ask
Gov.uk has HMRC's own guidance on the trading allowance, working for yourself, Self Assessment deadlines, allowable expenses and Making Tax Digital, and it is the place to confirm any figure in this post. HMRC's online tools can also tell you whether you need to register.
For anything specific to you, such as whether to claim the allowance or expenses, how to treat equipment, or whether a company makes sense, an accountant who works with online sellers is worth paying for. Bring them tidy records, and the fee is usually smaller than you expect. For the costs side, Etsy fees explained lists every fee you will see on your statements.
Frequently asked questions
Do I have to pay tax on Etsy sales in the UK?
If you are selling things you make or buy to sell, with a view to profit, you are trading, and trading profit is taxable. If your total trading income in a tax year is £1,000 or less, the trading allowance means you usually do not need to tell HMRC or pay tax on it. Above that, you normally register for Self Assessment and report it.
Is the £1,000 trading allowance based on sales or profit?
It is based on gross trading income, meaning your sales before any costs, not your profit. A print seller with £1,500 of sales and £1,200 of costs is over the allowance even though the profit is small. In that case you can deduct your actual expenses instead, but you cannot use both the allowance and your expenses.
Does Etsy report my sales to HMRC?
Yes, in most cases. Under the digital platform reporting rules that apply from 2024, platforms including Etsy send HMRC details of sellers' income each year, with an exemption for very small sellers. Assume HMRC can see your Etsy sales and report them yourself.
What expenses can an Etsy seller claim?
Costs incurred wholly and exclusively for the business: Etsy fees, print and production costs, postage and packaging, Etsy Ads, mockup and design software, and a business share of costs like your phone and internet. Personal spending, and the private share of anything used for both, cannot be claimed.
Should I set up a limited company for my Etsy shop?
Not by default. A limited company brings separate accounts, a Companies House filing, corporation tax and more admin, and only tends to make sense at higher profits or when you want to separate business risk from your personal finances. It is a decision to make with an accountant who can see your numbers.
How much should I set aside for tax from Etsy sales?
Work it out from profit, not sales. Estimate your yearly profit, add your other income, and look at what falls above the personal allowance at your income tax rate, plus Class 4 National Insurance. Many sellers move a fixed share of each month's profit into a separate savings account so the January bill is never a surprise.