Calling all crafty creatives. Do you know your tax obligations when you sell on Etsy?
Take a look at our guide where we cover who needs to pay, what you should pay and how much you might owe.
As a general rule, you pay tax when selling on Etsy if you’re running a business. If you use Etsy as a hobby business, the chances of you having to pay tax are lower. But it depends how much money you make.
If you’re employed and sell on the side, you’re covered by the Trading Allowance. It lets you earn up to £1,000 on top of your salaried income, tax-free. This is in sales though, not profit. If you make anything more than this, you’ll be taxed on the portion you make over £1,000.
Take a look at our Employed and Self Employed tax calculator if you need a hand working out what you owe.
If you’re not employed or self-employed but you sell on Etsy – so it’s just a hobby – you generally won’t need to pay tax on your income. You can earn up to £12,570 tax-free because of the Personal Allowance.
If you’re self-employed and Etsy is your main source of income, you’ll have to pay tax as you would on any income. To distinguish between a hobby business and a business for profit, here are 5 key defining features of a business for profit:
There are three types of tax that you’ll need to pay:
The Income Tax that you pay is dependent on what you earn from your sales. Below are the rates that you will have to pay for the 2023/24 tax year.
|What you earn||Tax band||Tax rate|
|Up to £12,570||Personal Allowance||0%|
|£12,571 to £50,270||Basic Rate||20%|
|£50,271 – £125,140||Higher Rate||40%|
|Over £125,141||Additional Rate||45%|
To calculate what you owe in Income Tax, you can also use our handy calculator.
National Insurance is tax that we all pay, whether we’re self-employed or paid by an employer. What you pay depends on how much you earn and your tax status.
It accounts for things like your State pension, the NHS and care systems as well as social benefits like JSA, the Maternity Allowance etc. Take a look at HMRC’s full list here.
As a member of the self-employed workforce (what a title!), you’ll pay both Class 2 National Insurance when you earn more than £6,725 per year and Class 4 National Insurance when you earn over £12,570.
When it comes to expenses, you should apply common sense when deciding what to deduct. HMRC will accept any reasonable business expense that you have, as long as you have evidence of the cost.
Make sure to keep all your receipts or even make a spreadsheet of them at the start of every tax year.
Common expenses when you sell on Etsy:
If you earn over £85,000 in a year, you’ll be required to register for and pay VAT – Value Added Tax. This is another form of tax that’s added on most goods and services in the UK, currently taxed at 20%.
VAT is taken from the customer via the seller and then paid straight to HMRC. In other, much fancier, words, the seller is essentially collecting and remitting the money to HMRC.
Corporation tax is a tax paid by businesses based on their yearly profits. It’s also known as company tax. And yes, if you’ve set up your Etsy as an LTD company and you’re making a profit, you’ll need to pay it.
Don’t panic. We can help. We offer one-off, personal tax advice from an accredited accountant for just £119. Book a phone or video call to get your head around what taxes you need to pay as an Etsy seller. Learn more here.
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