The number you must declare to HMRC is your gross GMV, not the lower amount TikTok drops into your bank.
This is the single most common mistake we unwind for TikTok Shop sellers. TikTok collects the full price a customer pays, skims its commission and fees off the top, nets off any refunds, then forwards you the balance. By the time the money reaches your account it has already shrunk. If you treat that shrunken deposit as your sales figure, every number downstream, your turnover, your VAT test, your profit, will be wrong, and it won't match what TikTok has already told HMRC about you.
The good news, and the part that softens the blow, is that those fees and commission are fully deductible. You don't lose them. You just have to record them in the right place. This guide shows you the trap, why HMRC and platform reporting both expect gross, and a full worked example reconciling a settlement report back to the bank for the 2026/27 tax year.
What is the net payout trap?
The trap is mistaking your payout for your turnover. They are two different numbers and only one of them goes on the top line of your accounts.
Your turnover, often shown in TikTok's reporting as GMV (gross merchandise value), is the full value of what customers paid you. Your payout is what's left after TikTok has deducted its commission, transaction and fulfilment fees, and any refunds it processed during the settlement period. The gap between the two can easily be 12 to 18 percent of your sales once commission, payment fees and the odd refund are stacked up.
Recording the payout as turnover feels intuitive because that's the money you can actually see and spend. But it quietly understates your sales, and your sales figure is what HMRC's rules hang on, not your bank balance. We covered the same principle from a different angle in why your TikTok Shop deposit isn't your turnover, and it's worth reading alongside this.
Why does HMRC expect the gross figure?
Because that is the legal definition of turnover. Your turnover is the gross value of your sales before any costs come off. You then deduct allowable expenses, including platform fees, separately to arrive at your taxable profit. The fees never reduce the sales line itself; they sit in the expenses column.
This matters for three separate tests, and each one is measured on gross income:
- The trading allowance. You can earn up to £1,000 of gross trading income in a tax year tax-free. The £1,000 is measured before any fees or expenses come off. Go over it and you must register for Self Assessment and report the income.
- VAT registration. You must register for VAT once your taxable turnover exceeds £90,000 on a rolling 12-month basis, or if you expect to pass £90,000 in the next 30 days alone. Taxable turnover is gross sales, not payouts. A seller watching only their bank will think they're well clear of the threshold long after their gross sales have crossed it.
- Making Tax Digital for Income Tax. From 6 April 2026, MTD for ITSA is mandatory for sole traders whose qualifying income, meaning gross turnover before expenses, is over £50,000 (assessed on your 2024/25 return). The threshold drops to over £30,000 from April 2027 and over £20,000 from April 2028. Around 860,000 people are in the first wave. Whether you're in it is decided on your gross figure, so understating turnover can lull you into thinking you're outside MTD when you aren't.
In short, if you net everything down to the payout, you can unknowingly trip past a threshold, or think you've cleared one when you haven't.
The reporting cross-check that catches people out
There's a second, harder reason the gross figure matters: HMRC already has it.
Since 1 January 2024, under the OECD model reporting rules for digital platforms (what most sellers call DAC7), platforms such as TikTok Shop must collect, verify and report seller income and identity details to HMRC every year. The first reports, covering the 2024 calendar year, were due by 31 January 2025, so your 2025 figures were reported to HMRC by 31 January 2026. HMRC then cross-checks that data against your tax return.
The figure TikTok reports is built around your gross platform activity, not the net cash you withdrew. So if you declare only your payouts, your return will be lower than the figure HMRC already holds, and that mismatch is exactly what triggers a nudge letter or an enquiry. Declaring gross GMV, then deducting fees as expenses, is what makes your return reconcile cleanly to TikTok's report. If you've had a payout held over tax details, our guide to the TikTok Shop MRDP tax confirmation walks through the same reporting machinery.
The upside: the fees are fully deductible
Declaring gross does not mean paying tax on money you never received. Every penny TikTok deducts is recorded as an allowable business expense, so it reduces your taxable profit just as effectively as if you'd never grossed it up. You land on exactly the same profit either way; you've simply shown HMRC the full picture.
The deductible items typically include:
- Commission (referral) fees charged on each completed order.
- Transaction or payment processing fees.
- Fulfilment and storage fees if you use TikTok's fulfilment service.
- Advertising and promotion fees.
Refunds are handled slightly differently. A refund isn't an expense; it reduces your sales by the refunded amount, because it cancels part of a sale that already happened. So fees come off as costs, refunds come off the sales line, and both routes get you to the right profit. For the wider list of what you can claim, see our rundown of allowable expenses for TikTok creators and sellers. And if you're VAT registered, there may be reclaimable VAT buried in those fees, covered in reclaiming VAT on TikTok Shop fees and commission.
Worked example: reconciling the settlement report to the bank
Illustrative example. Priya runs a TikTok Shop selling haircare as a sole trader in the 2026/27 tax year. Her TikTok settlement report for one month shows the figures below, and a single payout of £8,160 lands in her bank account.
| Settlement line item | Amount |
|---|---|
| Gross merchandise value (customer payments) | £10,000 |
| Less: platform commission and fees | (£1,440) |
| Less: customer refunds | (£400) |
| Net payout to bank | £8,160 |
If Priya recorded the £8,160 deposit as her sales, she'd understate her turnover by £1,840 in a single month. Recorded correctly, the month looks like this:
- Turnover (GMV): £10,000
- Less refunds (reduction of sales): £400, giving net sales of £9,600
- Less platform fees (allowable expense): £1,440
The arithmetic ties straight back to the bank: £10,000 minus £1,440 minus £400 equals the £8,160 that arrived. For her books her gross turnover is £10,000; once she takes off the £400 of refunds and the £1,440 of fees, the £8,160 left is exactly the cash that hit her account. Same profit, full disclosure, and the deposit reconciles to the penny.
Why the gap is dangerous over a year
At this rate Priya's gross GMV runs to £120,000 a year, while her payouts total around £97,920. Both are over the £90,000 VAT threshold, so she must be VAT registered, but a seller tracking only the bank might convince themselves they're a sub-£100,000 business and miss the line entirely. Scale her down to £8,000 of GMV a month and the trap flips the other way: £96,000 of gross sales still breaches the threshold, even though payouts of around £6,530 a month look like a comfortable £78,000 business. The deposit hides the exact moment you should have registered.
How to record it in your books
Use your TikTok Shop settlement and financial reports as the source for your accounts, never your bank statement. The bank only shows the net figure; the settlement report breaks it back into the components HMRC wants to see. Our deeper walkthrough on accounting from the TikTok Shop settlement report covers the mechanics in full, but the discipline is simple:
- Record gross GMV as turnover.
- Record commission, transaction, fulfilment and advertising fees as expenses.
- Record refunds as a reduction of sales.
- Reconcile every payout: gross, minus fees, minus refunds, should equal the deposit. If it does, your turnover is right and your figures will match TikTok's report.
Doing this monthly keeps your VAT and Self Assessment figures ready, and from April 2026 it's also what MTD's quarterly updates will require if your qualifying income is over £50,000, since you'll need digital records and MTD-compatible software rather than a once-a-year scramble.
A note on overseas commission and VAT
One nuance if you also earn affiliate or marketing commission rather than just selling goods. Commission billed to an overseas business, for example a Chinese or US seller, or an overseas TikTok entity, falls under the general place-of-supply rule for B2B services: the supply is treated as made where the customer belongs. That puts it outside the scope of UK VAT, and it does not count toward your £90,000 VAT registration threshold. Commission from a UK-established business is different: it counts toward the threshold and is standard-rated at 20% once you're registered. We unpack this in detail in how TikTok affiliate commission is taxed in the UK. None of this changes the core rule for your shop sales, though: GMV is gross, and gross is what you declare.
Sources
- GOV.UK — Expenses if you're self-employed
- GOV.UK — VAT registration: when to register
- GOV.UK — Tax-free allowances on property and trading income
- GOV.UK — Selling goods or services on a digital platform
- GOV.UK — Check if you need to sign up for Making Tax Digital for Income Tax
Frequently asked questions
Do I declare my TikTok Shop GMV or the amount paid into my bank?
You declare your gross GMV, the full value customers paid, as your turnover. The amount paid into your bank is net of TikTok's fees, commission and refunds, so it's lower. You record the fees as allowable expenses and refunds as a reduction of sales separately, which gets you to the same taxable profit while matching the figure HMRC receives from TikTok.
Are TikTok Shop commission and fees tax deductible?
Yes. Commission, transaction, fulfilment and advertising fees are all allowable business expenses. You deduct them to work out your taxable profit, so declaring gross GMV never means paying tax on money you didn't keep. Refunds are treated differently, as a reduction of your sales rather than an expense.
Why does HMRC already know my gross TikTok sales?
Since 1 January 2024, digital platform reporting rules require TikTok Shop to report your income and identity details to HMRC each year. Your 2025 figures were reported by 31 January 2026. The reported figure is based on your gross activity, so if your tax return only shows net payouts it won't match, and that gap can trigger an HMRC enquiry.
Could the net payout trap affect my VAT or MTD position?
Yes. VAT registration is tested on gross turnover, so you must register once gross sales exceed £90,000 on a rolling 12-month basis, regardless of what reaches your bank. Making Tax Digital for Income Tax, mandatory from 6 April 2026 for qualifying income over £50,000, is also assessed on gross turnover. Tracking only your payouts can hide the point at which either obligation kicks in.
