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November 15, 2021
November 15, 2021
Tax essentials

The Complete Tax Guide to Sell on Etsy

Earnr
Earnr
Everything you need to know about your tax obligations when you sell you on Etsy.

Around 1 in 76 adults have an active Etsy store in the UK. Which means over 519,000 people earn money through Etsy each year.

While Etsy makes it very easy to sell on their website, it's tricky to understand taxes. Do Etsy manage them? Which parts should you manage? Figuring this out is not straight-forward, which is why we've put together this guide.

What types of tax do I need to consider when selling on Etsy?

If you sell (anything) on Etsy, there are two types of tax you need to consider: Value added tax and Income tax

  1. Value-added tax or VAT is the tax that you pay on buying things on Etsy. You pay VAT on almost anything you buy in the UK, including things on Etsy. Unfortunately, while it's the buyer that pays for VAT, you as the seller need to collect and send the VAT to HMRC.
  2. Income Tax and National Insurance is the tax that you pay on your Etsy income. Like income tax you pay when employed, a part of your Etsy profit is taxed.

If you've run your Etsy store for a while and you've set up a limited company, you will also need to consider corporation tax.

Which of these are done by Etsy?

While Etsy helps you set up your business, they do not manage your taxes. It is your own responsibility to stay on top of your income tax and VAT responsibilities.

Confusingly, your monthly statement does show that you are charged some VAT:

This is the VAT that Etsy charges you for listing your items, rather than the VAT that you need to charge your clients.

Do I need to manage my VAT for Etsy?

Not every business needs to manage or charge VAT. Any business with less than £85,000 in sales a year does not need to worry. You can still voluntary register and manage this, but for most people, it's not worth the hassle.

If you sell more than £85,000 worth of goods, then this changes. Rather than going into the details here, you can read more about how to manage your VAT here.

What about Income tax?

This all depends on how much money you make with Etsy (and outside Etsy).

If you had sales of less than £1,000 a year with Etsy you do not need to do anything. HMRC lets you earn £1,000 a year through websites like Etsy without worrying about income tax.

If you had sales of more than £1,000 a year with Etsy, you need to submit a tax return. This doesn't necessarily mean you need to pay tax. It just means HMRC wants to know a little bit more about your business in case you start earning more in the future.

So I still need to do a tax return if I make a loss?

Yes, If you have sales of more than £1,000. There're also some other reasons why you may want to do a tax return for your business each year (like using your current loss to lower your future tax bill).

Rather than stressing about doing your tax return, we can help! The Earnr app helps you check if you need to do a tax return and helps your prepare everything you need to submit a self-assessment to HMRC.

P.S. You said something about corporation tax?

If you're one of the 11% of businesses on Etsy that has set up a limited company and your business makes a profit, then you also need to pay corporation tax. As the majority of Etsy sellers have not set up a limited company, we recommend you talk to an accountant to help you with your tax responsibility.


Earnr automates your day-to-day business and finance admin so you have more time to focus on growing and creating. Earnr can automate your tax return in just 17 minutes. Visit the app store to get started today.

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