Part of our complete guide to ecommerce seller tax.
Once it's a real business
If you've established your Etsy shop is genuinely trading, see our guide on hobby vs trading, three practical questions follow: what can you claim, when does VAT apply, and how does Making Tax Digital affect you. This guide covers all three.
What you can claim
- Materials and stock used to make or source what you sell
- Etsy's own fees, listing fees, transaction fees, payment processing fees, and any advertising spend on the platform
- Packaging and postage costs
- A proportion of home working costs if you work from home, calculated fairly against the space and time actually used for the business
- Equipment used for the business, sewing machines, craft tools, a dedicated laptop, photography equipment for listings
Keep records of all of this as you go, Etsy's own sales reports help with income, but expenses need separate tracking.
When VAT applies
VAT registration becomes compulsory once your total taxable turnover, across Etsy and any other sales channels, crosses £90,000 in a rolling 12-month period, see our guide on the VAT registration threshold for exactly how that's measured. It's your combined trading turnover that counts, not just what comes through Etsy specifically.
Key point: If you sell on Etsy and other platforms, or Etsy alongside a physical market stall, all of it counts toward the £90,000 threshold together, not separately per channel.
Making Tax Digital
If your qualifying self-employment income exceeds the relevant threshold, see our note on who's affected by MTD for Income Tax, the same digital record-keeping and quarterly submission requirements apply to an Etsy-based business as to any other self-employment. There's no exemption for selling through a specific platform.
Growing your Etsy shop into a proper business? Book a free consultation and we'll get your records, VAT position, and MTD compliance sorted properly, see our ecommerce sellers service.
Frequently asked questions
What can Etsy sellers claim as expenses?
Materials and stock, Etsy's own fees (listing, transaction, payment processing), packaging and postage, a proportion of home working costs, and equipment used for the business, among other genuine business costs.
Do I need to register for VAT as an Etsy seller?
Only once your taxable turnover across all your trading, not just Etsy, crosses the £90,000 threshold in a rolling 12-month period, see our VAT threshold guide for how that's measured.
Does Making Tax Digital apply to Etsy sellers?
If your qualifying income from self-employment exceeds the relevant MTD ITSA threshold, yes, the same rules apply to an Etsy-based business as to any other self-employed trading activity.
Can I claim Etsy's fees as an expense?
Yes, listing fees, transaction fees, payment processing fees, and advertising costs on the platform are all generally allowable business expenses against your trading income.