You started your Etsy shop for the love of making things, not the joy of tax returns. Then the orders picked up, Etsy sent you a note about reporting your earnings to HMRC, and now you're wondering whether you owe anything and when.
Here's the short version. Whether you owe tax depends on how much you earn and whether you're really running a business. The first £1,000 of trading income each year is usually covered by the trading allowance, so plenty of casual sellers owe nothing. Once you go past that, you'll normally need to register for Self Assessment and pay tax on your profit.
This guide is for UK-based Etsy sellers who treat their shop as more than a one-off clear-out. We'll cover when you owe HMRC, how the trading allowance works, what the new platform reporting rules mean, and a worked example so you can see the numbers. Figures are for the 2025/26 tax year.
Do I have to pay tax on my Etsy sales?
It depends on two things: whether you're trading, and how much you bring in.
If you're clearing out personal belongings you no longer want, that usually isn't trading and isn't taxable income. Selling your old wardrobe is not a business.
But Etsy is built for makers and curators. If you make items to sell, buy stock to resell, or sell regularly with the intention of making a profit, HMRC treats that as a trade. That income is taxable, subject to the allowances below.
The amount matters too. If your gross trading income (your total sales before any costs) is £1,000 or less in a tax year, the trading allowance usually covers it and you don't have to tell HMRC. Go above £1,000 and you normally need to register and report it.
One thing to clear up early: a platform reporting your details to HMRC does not automatically mean you owe tax. Whether you owe depends on the rules below, not on whether Etsy sent a report.
What is the £1,000 trading allowance?
The trading allowance is a tax-free allowance of up to £1,000 a year for individuals with trading or casual income. For 2025/26 it stays at £1,000, and it's measured against your gross income, not your profit.
It works in two ways.
Full relief. If your gross trading income for the year is £1,000 or less, the income is covered in full. You don't have to tell HMRC or declare it on a tax return. You should still keep records in case your sales grow.
Partial relief. If your gross trading income is more than £1,000, you can choose to deduct the £1,000 allowance from your income instead of deducting your actual expenses. You can't do both, and you can't deduct more than your income.
The £1,000 is a single allowance across all your casual and trading income combined, not £1,000 per platform. If you sell on Etsy and also do a bit of freelance design, that's one shared £1,000.
If you're running your shop as a proper business, you're operating as a sole trader, and the same income tax and National Insurance rules apply to you as to any other self-employed person.
Should I claim the trading allowance or my expenses?
This is the most useful decision an Etsy seller can get right, and it comes down to simple maths.
You can claim the £1,000 trading allowance, or you can claim your actual allowable business expenses (materials, Etsy fees, packaging, postage, a share of your home costs). You cannot claim both. So you pick whichever is bigger.
- If your real expenses are less than £1,000, claim the trading allowance. It wipes out more income.
- If your real expenses are more than £1,000, claim your actual expenses instead.
Illustrative example: low-cost seller. Maya sells digital print downloads on Etsy. In 2025/26 she takes £2,400 in gross sales, and her only real costs are £300 of Etsy fees. If she claims her expenses, her profit is £2,100. If she claims the trading allowance instead, her profit is £2,400 minus £1,000, which is £1,400. The trading allowance leaves less profit to be taxed, so Maya claims the allowance.
Because her expenses are low, the allowance is the better choice. A maker with high material and postage costs would usually be better off claiming actual expenses. Keep records either way so you can compare each year.
When do I need to register for Self Assessment?
If your gross trading income from Etsy (and any other self-employment) is more than £1,000 in a tax year, you normally need to register for Self Assessment and file a tax return.
Registering is its own deadline, separate from filing. You must register by 5 October following the end of the tax year in which you started trading. For income earned in 2025/26 (the year ending 5 April 2026), that means registering by 5 October 2026.
The filing and payment deadlines then follow:
| What | Deadline |
|---|---|
| Register for Self Assessment | 5 October after the tax year |
| Paper tax return | Midnight 31 October after the tax year |
| Online tax return | Midnight 31 January after the tax year |
| Pay the tax you owe (balancing payment) | Midnight 31 January after the tax year |
Miss the registration deadline and you risk a penalty, so it pays to act early. If you'd rather not deal with the forms at all, our Self Assessment service handles registration and filing for you.
How much tax will I actually pay?
Once you're past the trading allowance, you pay income tax and Class 4 National Insurance on your profit, which is your sales minus allowable expenses (or minus the trading allowance, if that's bigger).
Here are the 2025/26 figures that apply to a typical Etsy seller as a sole trader:
| Item | 2025/26 figure |
|---|---|
| Personal allowance (tax-free) | £12,570 |
| Basic rate income tax | 20% |
| Higher rate income tax | 40% (income above £50,270) |
| Class 4 NIC main rate | 6% on profits between £12,570 and £50,270 |
| Class 4 NIC above the upper limit | 2% on profits above £50,270 |
You only pay income tax once your total taxable income for the year goes above your personal allowance of £12,570. If Etsy is a side hustle alongside a job, your salary uses up some or all of that allowance first, so your shop's profit can be taxed from the first pound.
Illustrative example: full-time maker. Priya runs her Etsy shop as her only source of income in 2025/26. She takes £18,000 in gross sales and has £4,500 of allowable expenses (materials, Etsy fees, postage and packaging). Her profit is £13,500. Because her expenses are well above £1,000, she claims actual expenses rather than the trading allowance.
- Profit: £18,000 minus £4,500 = £13,500
- Income tax: only the £930 above her £12,570 personal allowance is taxed, at 20%, which is £186
- Class 4 NIC: 6% on the £930 of profit above £12,570, which is £55.80
- Total due to HMRC: £241.80
Want to sanity-check your own numbers before you file? Try our self-employed tax calculator to estimate income tax and National Insurance on your shop's profit.
What do the new Etsy reporting rules to HMRC mean?
From 1 January 2024, digital platforms including Etsy must collect seller information and report it to HMRC each year. Etsy gives you a copy of what it reports, broken down by quarter, which is handy when you complete your return.
A platform doesn't have to report you if both of these are true for the year: you made fewer than 30 sales of goods, and you received less than 2,000 euros (about £1,700) for those sales. Above either of those, expect your details to be passed on.
Two points sellers often miss:
First, being reported does not create a tax bill. The rules above, the trading allowance and the £1,000 threshold, decide whether you owe anything. Reporting just gives HMRC the data to check.
Second, the reporting thresholds are not the same as the trading allowance. You can be below the platform's reporting threshold and still owe tax, or be reported and owe nothing. Judge your position on your own income, not on whether Etsy filed a report.
If your shop is growing into a serious business, it's worth getting the structure right early. Our guidance for Etsy sellers and for sole traders explains what good record-keeping and tax planning look like as you scale.
Frequently asked questions
Do I pay tax on Etsy if I only sell a few items a year?
Probably not. If your gross trading income is £1,000 or less in a tax year, the trading allowance covers it in full and you don't have to tell HMRC. Keep simple records in case your sales grow past the threshold.
Is the £1,000 trading allowance based on profit or sales?
It's based on gross income, which is your total sales before deducting any costs. So if you sell £1,200 of goods but only made £300 profit, you're still over the £1,000 threshold and need to consider registering.
Does selling personal items on Etsy count as taxable income?
Usually not. Selling personal belongings you no longer want is not trading. Tax applies when you're making or buying items to sell at a profit, or selling regularly as a business.
What happens if Etsy reports my earnings to HMRC?
Nothing automatically. Reporting just gives HMRC a copy of your platform earnings. Whether you owe tax depends on the trading allowance and your profit, not on the report itself. If you're trading above £1,000, make sure you're registered for Self Assessment.
Do I pay National Insurance on my Etsy profit?
If you're self-employed and your profit goes above £12,570 in 2025/26, you pay Class 4 National Insurance at 6% on profit between £12,570 and £50,270, then 2% above that. Profit below £12,570 doesn't attract Class 4 NIC.
When is the deadline to register for Self Assessment as an Etsy seller?
You must register by 5 October following the end of the tax year in which you started trading above £1,000. For 2025/26 income, that's 5 October 2026. The online return and payment are then due by 31 January 2027.
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Key takeaways
- Selling personal items isn't taxable. Making or buying to sell at a profit is.
- The first £1,000 of gross trading income each year is usually covered by the trading allowance.
- Above £1,000, register for Self Assessment and pay tax on your profit.
- Claim the trading allowance or your actual expenses, whichever is bigger, never both.
- Etsy reporting your earnings to HMRC doesn't itself create a tax bill.
Not sure whether your shop has crossed the line into a taxable business? Book a free 20-minute call with a Zmartly accountant and we'll tell you exactly where you stand and what to file. Get in touch through our Self Assessment service to get started.
