Most UK online sellers pay Income Tax and Class 4 National Insurance on their profits if they trade as a sole trader, or Corporation Tax if they use a limited company. You must register for VAT once taxable turnover passes £90,000 in any rolling 12 months. A £1,000 trading allowance keeps very small sellers tax-free.
Whether you sell on Amazon, eBay, Etsy, Vinted, TikTok Shop or your own Shopify store, the tax rules are the same: it is the profit you make and how your business is set up that decide what you owe. This guide breaks down every tax an online seller faces in 2026/27, the thresholds that trigger each one, and the allowances that lower the bill. Every figure here was checked against gov.uk on 19 August 2026.
How much tax does an online seller pay in the UK?
An online seller pays tax on profit, not on total sales. A sole trader pays Income Tax and Class 4 National Insurance once profits pass £12,570, Corporation Tax applies at 19% to 25% if you trade through a limited company, and VAT at 20% applies once turnover passes £90,000. The taxes below stack depending on your structure and size.
| Tax | Who pays it | 2026/27 trigger |
|---|---|---|
| Income Tax | Sole traders and partners | Profit over £12,570 |
| Class 4 National Insurance | Sole traders and partners | Profit over £12,570 |
| Corporation Tax | Limited companies | Any taxable profit |
| VAT | Any seller over the threshold | Turnover over £90,000 in 12 months |
The first question is always whether what you do even counts as a taxable business, so start there.
Do you need to pay tax on the things you sell online?
You pay tax only if you are trading, meaning you buy or make goods to sell them at a profit, or provide a service for payment. Clearing out your own unwanted belongings is not trading and is not taxed. Once your gross trading income passes the £1,000 trading allowance in a tax year, you must tell HMRC and may owe tax on the profit.
Trading versus selling your own second-hand items
HMRC looks at the pattern of what you do, sometimes called the badges of trade: buying stock to resell, making items to sell, repeating sales regularly, and selling to make a profit all point to trading. Selling your old sofa, outgrown children's clothes or an unwanted gift on Vinted or eBay does not. If in doubt, HMRC's guidance on income from online platforms sets out the test.
The £1,000 trading allowance
The trading allowance lets you earn up to £1,000 of gross trading income a year tax-free without registering for Self Assessment. Earn more and you have a choice: deduct the flat £1,000 from your income, or deduct your actual allowable expenses, whichever leaves you better off. If you are unsure whether you cross the line, our guide on whether you need to file a Self Assessment walks through it.
Do selling platforms report you to HMRC?
Yes. Since 1 January 2024, digital platforms such as eBay, Etsy, Vinted, Amazon and Airbnb must collect seller data and report it to HMRC once a year. If you made around £1,700 (roughly 2,000 euros) or completed 30 or more sales on a platform in a calendar year, the platform shares your details and income with HMRC and sends you a copy. Data for 2025 was reported by 31 January 2026.
This is not a new tax, and it does not change what you owe. It simply means HMRC can now cross-check the income of people who should be registered. If you are genuinely trading above the £1,000 trading allowance, register and declare it. If you are only selling personal items, you have nothing to report even if the platform passes on your figures. HMRC confirms the rules in its guidance for online platform income.
How much Income Tax do online sellers pay?
Sole traders pay Income Tax on their profit after allowable expenses. For 2026/27 the first £12,570 is tax-free (the Personal Allowance), then 20% up to £50,270, 40% up to £125,140, and 45% above that. These thresholds are frozen, so as profits grow more of them is taxed at the higher rates.
| Band | Taxable profit (2026/27) | Income Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
You can check the live figures on GOV.UK's Income Tax rates page. Income size matters, but so does complexity: dividends, capital gains or foreign income each add work.
How to register and file Self Assessment
Register with HMRC as self-employed by 5 October following the end of the tax year in which you started trading. You will receive a Unique Taxpayer Reference (UTR), then file your Self Assessment return and pay any tax due by 31 January. Keep accurate records of income and expenses all year so the return is quick and the figure is right.
Key Self Assessment deadlines
- 5 October: register for Self Assessment for the previous tax year.
- 31 October: deadline for paper returns.
- 31 January: file online and pay the tax you owe.
Miss these and penalties are automatic and compounding, starting at £100 even if you owe nothing. If numbers are not your strong point, our Self Assessment service takes the return off your plate.
What National Insurance do online sellers pay?
Self-employed online sellers pay Class 4 National Insurance on profits above £12,570, at 6% up to £50,270 and 2% above that, for 2026/27. Class 2 National Insurance is no longer a compulsory weekly charge: once your profits reach the Small Profits Threshold of £7,105 your contributions are treated as paid, protecting your State Pension record without a bill.
- Class 4: 6% on profit between £12,570 and £50,270, then 2% above £50,270.
- Class 2: no longer payable if profits reach £7,105; treated as paid automatically. Below that you can pay voluntarily (£3.65 a week in 2026/27) to fill a gap in your record.
Worked example: an online seller with £15,000 of profit pays Class 4 at 6% on the £2,430 above £12,570, which is £145.80 for the year, with Class 2 credited automatically. Both are collected through your Self Assessment return. The rates are on GOV.UK's self-employed National Insurance page.
When do you need to register for VAT?
You must register for VAT once your taxable turnover passes £90,000 in any rolling 12-month period, or if you expect to pass it in the next 30 days. Registration is turnover-based, not profit-based, so a high-volume seller can be caught well before making much profit. Once registered you charge 20% VAT on most goods and pass it to HMRC.
Marketplace VAT: who accounts for it?
For many marketplace sales, the platform is responsible for collecting and accounting for the VAT, particularly on goods sold by overseas sellers or imported consignments of £135 or less. That does not remove your own registration duty once you pass £90,000 on your own account. Our full walkthrough on ecommerce VAT registration and the plain-English when to register for VAT guide cover the detail.
Selling abroad: imports and exports
Exports of goods to customers outside the UK are usually zero-rated for VAT, so you charge 0% but must keep proof the goods left the UK. Imports attract 20% import VAT on the value of the goods, which you can reclaim on your VAT return if you are registered. Keep the paperwork: HMRC will want to see it.
How much Corporation Tax does an online shop pay?
If you sell through a limited company, profits are charged to Corporation Tax instead of Income Tax. For 2026/27 the small profits rate is 19% on profits up to £50,000, the main rate is 25% on profits over £250,000, and profits in between attract Marginal Relief that tapers the effective rate from 19% towards 25%.
| Taxable profit | Corporation Tax rate (2026/27) |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,001 to £250,000 | Marginal Relief (effective 19% to 25%) |
| Over £250,000 | 25% (main rate) |
Worked example: a company with £50,000 of profit pays the 19% small profits rate, which is £9,500. You file a CT600 within 12 months of your accounting period end and pay the tax within 9 months and 1 day. See the current figures on GOV.UK Corporation Tax rates, and our complete Corporation Tax guide for the full mechanics. If you take money out as dividends, read salary versus dividends in 2026/27 too.
Does Making Tax Digital apply to online sellers?
Making Tax Digital for Income Tax is now live and it affects sole trader sellers and landlords. From 6 April 2026, those with qualifying income over £50,000 (measured on the 2024/25 return) must keep digital records and file quarterly updates plus a final declaration. The threshold falls to over £30,000 from April 2027 and over £20,000 from April 2028.
If your online business is above the threshold, four quarterly submissions a year replace the single annual return, so start keeping digital records now. Our guides to Making Tax Digital for Income Tax and MTD for eBay and marketplace sellers explain what to do, and TikTok sellers should read MTD for TikTok Shop sellers. HMRC's eligibility rules are on GOV.UK.
What expenses can online sellers claim?
Allowable expenses reduce your taxable profit, so tracking them cuts your tax bill directly. As an online seller you can deduct costs incurred wholly and exclusively for the business, including the fees the platforms charge you.
- Stock and raw materials
- Marketplace and payment processing fees (Amazon, eBay, Etsy, PayPal, Stripe)
- Postage, packaging and shipping
- Advertising and marketing
- Accounting software and subscriptions
- A proportion of home and phone costs where you work from home
Example: spend £200 on postage and £100 on packaging and you deduct the £300 from profit, so you pay tax only on the net figure. Our allowable expenses for sole traders guide lists what qualifies and what does not.
Sole trader or limited company: which is more tax-efficient?
There is no single answer, it depends on profit. At lower profits a sole trader is simpler and often cheaper to run. As profits grow, a limited company can be more tax-efficient because you can take a mix of salary and dividends and leave profit in the company, but you take on more filing. The crossover is usually somewhere around £30,000 to £50,000 of profit, and it is worth modelling both.
Weigh the admin against the saving, and factor in the extra compliance a company brings. If you want a clear answer for your own numbers, our qualified accountants at Zmartly can model both and tell you which wins.
Frequently asked questions
Do I have to pay tax on selling my own used items online?
No. Selling your own unwanted belongings, such as old clothes or an unwanted gift, is not trading and is not taxed, even if a platform reports your sales to HMRC. Tax applies only if you buy or make goods to sell at a profit and your gross trading income passes the £1,000 trading allowance.
How much can I earn from online selling before paying tax?
You can earn up to £1,000 of gross trading income a year tax-free under the trading allowance, with no need to register for Self Assessment. Above £1,000 you must tell HMRC, and Income Tax starts once your total taxable income passes the £12,570 Personal Allowance for 2026/27.
When do online sellers need to register for VAT?
You must register for VAT once your taxable turnover passes £90,000 in any rolling 12-month period, or if you expect to pass it within the next 30 days. VAT is based on turnover, not profit, so high-volume sellers can be caught early. Once registered you charge 20% VAT on most goods.
Do eBay, Etsy and Vinted report my sales to HMRC?
Yes. Since 1 January 2024 digital platforms report seller data to HMRC once a year, and they notify sellers who complete 30 or more sales or earn around £1,700 in a calendar year. It is not a new tax. You only owe tax if you are trading above the £1,000 trading allowance.
What tax does an online seller with a limited company pay?
A limited company pays Corporation Tax on its profits, at 19% up to £50,000, 25% over £250,000 and a tapered rate between, for 2026/27. Directors also pay tax on any salary or dividends they take. VAT applies once turnover passes £90,000, the same as for a sole trader.
Talk to a Zmartly accountant
Not sure which taxes apply to your online business, or whether you have crossed a threshold? Zmartly is CIMA-regulated and our qualified accountants work with Amazon, eBay, Etsy and Shopify sellers every day. We give you a clear, fixed-fee quote and handle the registrations, returns and VAT so you can get back to selling. See how we help online sellers or book a free call and we will tell you exactly where you stand.
All tax figures and thresholds checked against gov.uk on 19 August 2026. This article is general information, not advice for your specific circumstances.
