The tax guide to sell on Etsy
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.
Do I pay tax when I sell on Etsy?
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.
- I’m employed and sell on the side
- I’m not employed but I sell on Etsy
- Etsy is my main source of income
If you’re employed and sell on the side, you’re covered by the Trading Allowance. It lets you earn up to £1000 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 £1000.
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 £12,500 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:
- You buy wholesale to get your stock to sell
- You make or buy items purely to sell them on
- You’re selling regularly and for profit
- You’ve created (or are creating) a brand for yourself
- You’re registered as a business on Etsy (which is a pretty big clue!)
What tax do I pay?
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 2020/21 tax year.
|What you earn||Tax band||Tax rate|
|Up to £12,500||Personal Allowance||0%|
|Up to £50,000||Basic Rate||20%|
|£50,001 – £150,000||Higher Rate||40%|
|Over £150,000||Additional Rate||45%|
To calculate what you owe in Income Tax, you can also use our handy calculator.
What is National Insurance?
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, you’ll pay both Class 2 and Class 4 National Insurance when you earn over £6,475 and £9,501 respectively.
What can I expense when I sell on Etsy?
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:
- Etsy seller fees
- Events space hire (like a market stall, a pop-up shop, working space)
- Accounting costs
- Equipment to make your products (e.g. if you’re selling masks, expense the material you buy to make them)
- Card processing charges
- Marketing costs
- Photography costs (e.g. if you promote your shop and products on Instagram)
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