The short answer
Etsy is different from Vinted or a loft clear-out on eBay. Most Etsy shops sell things the owner made (candles, prints, jewellery, knitwear, digital downloads) or bought in to sell (vintage, supplies). HMRC says you're probably trading if you sell goods you've
- bought intending to sell for a profit, or
- "made, including items you make for a hobby".
So for most Etsy sellers the question isn't whether it's trading, it's how much:
- £1,000 or less in gross sales in a tax year (6 April to 5 April): covered by the trading allowance. You generally don't need to tell HMRC, but keep a record.
- Over £1,000: register for Self Assessment and pay Income Tax on your profit. You take off either the £1,000 allowance or your real costs, whichever is bigger.
The exception: if you're selling your own old things on Etsy (say, your vintage clothes collection you used to wear), those are personal possessions, and selling them is usually tax-free, as on any platform.
"It's only a hobby"
This is the most common thing Etsy sellers tell themselves, and HMRC's own example is a hobby: someone who upcycles furniture "as a hobby with the intention to resell". Making something you enjoy doesn't stop the sales being trading income. What matters is that you made or bought the items to sell.
The good news is that the £1,000 allowance is generous for a genuine hobby shop. Twenty £40 orders a year, including the postage buyers pay, is £800: covered, with nothing to file.
£1,000 of what? Sales, not profit
The allowance is tested against your gross trading income: everything buyers paid you, including the postage they paid, before Etsy's fees and before your costs. A shop that takes £1,200 and spends £600 on materials is over the limit, even though it only made £600.
If you have other trading income too (say, a market stall or selling on Vinted as a reseller), add it together. There's one £1,000 allowance per person, not one per shop or app.
What Etsy makers can claim
Over £1,000, if your real costs are more than £1,000 you claim the costs instead of the allowance. For a maker they usually are. Typical allowable costs:
- Materials and supplies: wax and wicks, yarn, beads, paper, ink, blanks. HMRC lists "raw materials" and stock as allowable.
- Packaging: boxes, mailers, tissue, stickers, thank-you cards.
- Postage you pay to send orders. (If the buyer paid for delivery, that's in your sales; your Royal Mail or courier cost is the expense.)
- Etsy's fees: listing fees, the 6.5% transaction fee, payment processing, the regulatory operating fee, and Etsy Ads or Offsite Ads. If you aren't VAT-registered, Etsy also adds 20% VAT to its fees, and that VAT is part of your cost too.
- Working from home: if you spend 25 hours or more a month working on the shop at home, HMRC's simplified-expenses flat rate lets you claim £10 a month (25–50 hours), £18 (51–100) or £26 (101 or more), without splitting your bills. Keep a note of your hours.
- Equipment used for the shop, such as a printer, a sewing machine or a heat press, usually in the year you buy it under the cash basis (the standard method for sole traders). If you also use it personally, claim only the business share.
Not allowable: your own time. However many evenings a candle batch takes, you can't pay yourself a wage as a sole trader and deduct it.
Remember it's one or the other: real costs or the £1,000 allowance. You can't take the allowance and then claim materials on top.
Etsy's fees, worked through
Etsy's fees add up faster than many sellers expect. Using the fee model in our calculator (checked against Etsy's fee pages, 25 October 2026), a shop taking £6,000 from 250 orders pays about:
- Transaction fee, 6.5%: £390.00
- Payment processing, 4% + £0.20 per order: £290.00
- Listing fees, $0.20 (about £0.15) per item: £37.50
- UK regulatory operating fee, 0.48%: £28.80
- 20% VAT on those fees: £149.26
- Total: about £896, roughly 15% of sales, before any Etsy Ads or Offsite Ads.
That's one listing fee per order; a real shop pays more if it lists items that don't sell, or sells several items per order. Use your Etsy monthly statements for the real figure.
Three Etsy sellers, worked through
Illustrative, using 2025/26 rules and the calculator's fee model:
- Tom knits hats for fun. He sells 20 a year at £40 including postage: £800 gross. That's trading, but under the £1,000 allowance, so it's covered. He doesn't need to register, and keeps a simple list of sales.
- Lena sells prints. £1,300 gross from 60 orders, about £196 in Etsy fees and £300 of paper, ink and mailers, alongside a £26,000 salary. Her costs (£496) are less than £1,000, so she takes the allowance instead: profit £300, about £60 Income Tax. She's over £1,000, so she must register for Self Assessment.
- Priya runs a candle shop. £6,000 gross from 250 orders, alongside a £30,000 salary. Costs: Etsy fees about £896, wax, jars and packaging £1,450, postage £800, and the working- from-home flat rate of £10 a month (£120). Her real costs (£3,266) beat the allowance, so her profit is £2,734. At 20% that's about £547 Income Tax, and no Class 4 National Insurance because her profit is under £12,570.
The calculator runs these sums for your own figures, with Etsy's fees built in (including Offsite Ads), and picks the allowance or your real costs automatically.
Etsy's report to HMRC
Since 1 January 2024, selling platforms must collect sellers' details and report sellers to HMRC once they make 30 or more sales or receive about £1,700 (€2,000) or more in a calendar year. That's why Etsy may ask you for tax details such as your National Insurance number.
It's a reporting rule, not a new tax, and the report is not a tax return figure:
- It covers the calendar year (January to December), in quarters. Your return uses the tax year (6 April to 5 April).
- It shows what you earned "less any fees, commission or taxes deducted by the platform". Your return starts from gross sales, then takes off costs.
- It knows nothing about your materials, postage or packaging.
HMRC says the reports "do not replace your normal business records". If you've already had a letter, see what to do if HMRC writes to you about online sales, including how to put earlier years right.
VAT: not usually, for small shops
You only have to register for VAT if your taxable turnover for the last 12 months goes over £90,000, so most Etsy shops never need to. Until then you can't reclaim the VAT on Etsy's fees, which is why it counts as part of your costs above. Selling to buyers abroad, digital downloads to EU buyers, and VAT-registered shops are outside this guide.
If you're over £1,000: what to do next
- Register for Self Assessment by 5 October after the tax year ends (5 October 2026 for 2025/26). Missed it? Register now: see our guide to registering.
- File and pay by 31 January 2027 for 2025/26. If the bill is bigger than you can pay at once, see Time to Pay; and if your bill is over £1,000 you may also face payments on account.
- Late? See what it costs in our late penalties guide.
Keeping records
A record for each tax year makes all of this easy: date, item, what the buyer paid (including postage), Etsy's fees, and each cost with its receipt. Etsy's monthly statements and order downloads help, but they run by calendar month, so you still need to split them at 5 April. A spreadsheet you set up yourself works fine. If you'd rather not build one, our bookkeeping spreadsheet for Etsy, eBay, Vinted and Depop sellers (£12.99, Excel or Google Sheets) works out each sale's Etsy fee with the same fee model as this calculator and totals your tax year. It's made by the same people as this calculator, and it's optional: the calculator stays free.
Prefer to ask an AI? Our free Seller Skills pack for ChatGPT, Gemini or Claude turns a list of sales into tax-year totals, writes listings with Etsy's 13 tags, and drafts buyer replies. The Pro pack (£12) adds an Etsy shop and listing SEO audit and a price-after-fees check per item. Both give estimates, not advice.
The same trading test and £1,000 allowance apply on every platform. See also our Vinted and eBay tax guides.