According to Etsy’s latest global seller census, conducted in 2021, around 1 in every 70 UK residents runs an active Etsy shop. From selling second-hand items found lying around the house to managing a full-time Etsy business selling upcycled clothes and furniture, art and artisanal craftwork, there’s a lot of money to be made on the popular online marketplace.

But what about Etsy tax? Depending on how much money you make on Etsy annually, you may have to start paying taxes to HMRC – indeed, you may already owe tax without even knowing! What’s more, HMRC recently announced a change to its policy involving online marketplaces and their sellers.

Follow our guide to paying taxes with Etsy to determine whether your online selling qualifies you for tax exemption, and start maximising your potential profits today.

Exploring how HMRC’s new online selling requirements affect Etsy tax obligations

As of 1st January 2024, HMRC has enacted a law which obliges online marketplaces like Etsy to collect seller income and information and report their findings directly to the UK tax authority. This has urgent implications for Etsy sellers of all sizes, as it means HMRC is now able to clearly determine what each seller owes as soon as they pass the allowable threshold for income from online sales.

The good news is that you as an Etsy seller also have access to this information, potentially making it easier for you to stay on top of your earnings and taxes whilst charting the growth of your online shop. As ever, though, it remains advisable to seek the help and guidance of personal tax professionals when submitting a Self Assessment Tax Return for the first time, or if you’re at all unsure about what Etsy tax to pay.

Do I have to pay taxes with Etsy?

Not everyone selling on Etsy needs to concern themselves with Etsy taxes. As with income tax through a full- or part-time job, there are certain allowances below which your earnings are tax-free. 

Moreover, not every type of Etsy seller is likely to be deemed a ‘trader’ – the term most commonly used by HMRC to distinguish between the casual online seller and the online seller who sells for profit.

Let’s look at three different types of online sellers – trader, side hustler, and occasional seller – to find out where you fit in and what this means regarding Etsy and taxes.

Traders

A trader is someone who sells online in a consistent and organised manner with the intention of making a profit. You don’t have to operate an Etsy shop full-time to be considered a trader, either, but rather the definition depends on the way you run your shop. 

Profit is key here. HMRC will likely deem you to be ‘trading’ on Etsy if you buy or make items which you then sell for profit. If deemed a ‘trader’ by HMRC, your earnings would be considered taxable and you should prepare to fill out a Self Assessment Tax Return each year.

Below are a few example Etsy sellers who would qualify as ‘traders’ and thus most likely need to pay tax on their Etsy income:

• Nadia buys clothes from second-hand stores and charity shops to resell online for profit, sometimes even upcycling those clothes to increase her profit margins. 

• Dax is a collagist and painter who sells their art through their Etsy shop. Though the availability of their work is inconsistent – depending on their creative output – they make a decent yearly profit on what they do sell, thus qualifying them as a trader.

• Barry goes bargain hunting for vintage furniture and décor which he aims to sell for more than he paid, defining him as a trader in the eyes of HMRC. Barry’s income from Etsy is therefore taxable.

Side hustlers

Of course, not all of the UK’s 960,000+ active Etsy sellers operate as regularly or as successfully as our examples above. Some sellers on Etsy would consider their online shop a side hustle, rather than their main source of income. There are plenty of Etsy sellers who work full-time in other jobs and only sell on Etsy in their spare time. What about these sellers? Do they still need to pay tax on their Etsy income? 

The answer depends on a few different factors:

• Is the seller operating in a commercially-minded way, like a trader would?

• Is the seller intending to make a profit?

• How much is the seller making annually by selling on Etsy?

When HMRC receives information on sellers from online marketplaces like Etsy, its agents will ask questions like these of each seller's profile. They will likely deem a seller to be a taxable ‘trader’ if their side hustle is being operated and organised like a legitimate business, is intended to generate profit, and if the profit exceeds HMRC’s trading allowance.

Below are two example side hustles, one which would be deemed taxable and the other which would not:

• Sonia crochets bookmarks in her spare time, selling them on Etsy for enjoyment. Soon, her knitted bookmark shop grows in popularity but Sonia continues only to sell what she can make in her spare time and does not expand her range. She makes a small profit annually, well under £1000.  Most of her income from sales covers the cost of her materials and postage.  Sonia would likely not be deemed a trader, and would not have to worry about paying taxes with Etsy.

• Maruta makes personalised birthday cards in her spare time, also selling them on Etsy like Sonia. When Maruta’s side hustle starts turning a consistent profit, however, she expands her shop’s offering to include other customisable goods like mugs and beach towels. She watches her profit grow accordingly. Maruta has organised her Etsy shop like a commercially-minded business and expanded her offering to increase her profit. As such, she would likely be deemed a trader and would have to pay Etsy tax to HMRC.  

Occasional online sellers

Many of Etsy’s online sellers sell only occasionally, using the online marketplace to get rid of old unwanted items like vintage clothing, jewellery, books and DVDs – in other words, “cash in the attic” finds. 

Typically, these types of seller need not worry about paying tax on their Etsy income. Profit is again the crucial decider – if items are sold for their original value or less, then the seller is not likely to be deemed a trader, and so probably won’t have to pay Etsy tax.

Here’s a final example to help us explain:

• Mahmoud and his family are clearing out their garage when they find a few boxes of old CDs, vinyl records, posters and board games. They decide to make some extra pocket money by selling unwanted items on Etsy. Since these are Mahmoud’s personal possessions and Mahmoud only sells on Etsy very occasionally, they are not seen to be ‘trading’ and so needn’t worry about paying tax on their Etsy earnings.

HMRC’s Trading and Miscellaneous Income Allowance

Regardless of what kind of Etsy seller you are, HMRC’s Trading and Miscellaneous Income Allowance applies to you and will play an important role in determining whether or not you should be paying tax. This allowance states that if your total income from selling online is less than £1,000 in any given tax year (before any deductions are made) then you do not need to declare it to HMRC nor pay tax on it. Anything you earn over this allowance may however be deemed taxable.

What taxes do I have to pay when selling on Etsy?

If you’re someone who does have to pay Etsy tax, then you should know what to expect when it comes to settling your tax bill with HMRC.

Income tax

Everyone in the UK is liable to pay income tax to HMRC if earning over the Personal Allowance threshold of £12,570 per year. If you are trading through your online Etsy shop and making more than £1,000 per year, then you must declare this income to HMRC. If your Etsy income, combined with any other taxable income, exceeds this Personal Allowance threshold then you must pay tax on the excess. The rate you pay depends on your income tax bracket, as outlined below. 

For example, if you are a full-time Etsy trader earning £60,000 per year from your online shop, you would pay 0% tax on your Trading Allowance of £1,000, 0% tax on the next £12,570, 20% on earnings between £12,570 and £50,270, and 40% on earnings between £50,271 and £60,000. 

Similarly, if you are a side hustle Etsy seller whose shop has generated £5,000 this year, you would have to add the £4,000 which exceeds your Trading Allowance to your other taxable income (say from a full-time job). If, for example, the 4k of taxable Etsy earnings brought your annual income to £22,570, then you would pay 20% tax on the portion exceeding your personal allowance – i.e., 20% on £10,000.

National Insurance contributions

Earners in the UK must also pay National Insurance contributions, which you should budget for if your Etsy income makes it necessary for you to fill out a Self Assessment Tax Return.  Even if your income falls below the National Insurance threshold, you may choose to make voluntary contributions so you do not have any gaps in your National Insurance record that entitle you to the state pension.  Or, if you earn very little, you can apply for an exemption certificate. 

Deductible expenses

To minimise the tax you pay on earnings from Etsy, remember that there are numerous allowable business expenses which – provided you have kept a good record of them – you can deduct from your income before paying tax. For Etsy sellers, allowable expenses could include:

• Etsy seller fees

• Accounting costs

• Costs associated with event space hire (such as hiring a stall to sell at a maker’s market)

• Cost of marketing via social media, content marketing, and the like 

• Equipment to make your products (e.g. if you’re selling homemade cards then you can expense the paper and ink you buy to make them) 

• Photography costs (e.g. if you promote your shop on TikTok or Instagram)

• Card processing charges

What about VAT on taxes with Etsy?

VAT – Value Added Tax – is charged to buyers on most products sold in the UK. Sellers, however, only need to worry about collecting VAT on behalf of HMRC if their total business income exceeds the VAT threshold of £85,000 per year. 

Most Etsy sellers – even full-time traders – will likely not have to worry about registering for VAT, but for those that do we recommend speaking to a VAT specialist before proceeding.

Conclusion

The world of Etsy tax can be confusing to navigate, especially in light of the changes introduced by HMRC in January 2024, which make it mandatory for online marketplaces like Etsy to collect and report seller income to the UK tax authority. 

Most casual and occasional Etsy sellers will likely not have to worry about tax, as they either don’t make enough money for their Etsy income to qualify as taxable or are not operating like a profitable commercial enterprise. For other more serious online sellers, however, there is a good chance that the profit generated by their shop will define them as ‘traders’ who must pay tax on their Etsy income. 

The amount and type of tax that trading Etsy sellers must pay depends on their tax bracket and the degree to which they’ve exceeded both HMRC’s Trading and Miscellaneous Income Allowance of £1,000 and their Personal Income Allowance of £12,570 per year.

If in doubt about what Etsy tax you should pay, or if you want to maximise the potential of your Etsy earnings, contact a personal tax professional for further advice today.