How to pay yourself a salary from your Etsy store
Selling your products on Etsy can be more rewarding than traditional work, as the money from your sales is instantly transferred into your bank account. Therefore, technically you can spend them immediately.
However, if you are selling on Etsy as a proper side hustle and not every now and then to earn some extra money, you should think carefully about spending what you earn.
In this post, we’ll explain to you how you can stay on top of your tax and expenses while paying yourself a salary from your Etsy store.
Can I pay myself a salary from selling on Etsy?
The short answer is YES! However, you need to consider some things before deciding how much to pay yourself.
If you’re earning less than £1,000, you can claim your tax-free trading allowance, meaning that you don’t need to declare them to HMRC. So, technically you just need to keep aside some money for your shop expenses, such as materials. The same happens if you earn between £1,000 and £12,570 (which is referred to as personal allowance), with the only difference being that you’ll need to submit a tax return. Still, you don’t need to pay any tax, but in this case, HRMC wants to know a bit more about your business.
You can read more on how to complete your self-assessment tax return in this Earnr article.
On the other hand, once you earn more than £12,570, you don’t have to take care only of possible expenses for running your business, but you’re also responsible for paying taxes on everything above that. Here, you’ll be taxed with the basic rate, meaning 20% of what you earn above your personal allowance. This will stay the same until you start to earn more than £50k.
Unlikely an employer, platforms like Etsy do not keep aside any money for HMRC, meaning that you will be responsible for taking care of your tax.
Note that the amount of tax you pay is based on your total earnings. HMRC looks at what you've earned in a tax year (from employment and side income) and takes a certain percentage of it as tax. The tricky part is that you don't know how much self-employment or side income you'll make in a year.
So how do I know how much money I can keep as a salary?
If you’re above your personal allowance, we advise you to keep aside 30% of your profit each month and to put them in a saving account, where it can generate some interest. This will allow you to have enough money aside to cover your tax, and if you earn less than £50k, then you'll likely have some spare savings in it.
If you need some of the money to run your business in the short term, that’s fine, but you should make sure to be able to put it back and most importantly, make sure it's accessible when your tax bill is due!
Alternatively, you can set yourself a fixed monthly salary or allowance, that you know you can use, keeping in mind your expenses and tax!
How can Earnr help?
Earnr allows you to track your ingoings and outgoings over the course of the year, and automate your tax return. You mark each payment and each expense as you go so that by the time you get to do your tax return, we’ll have everything we need to do the process for you.
Check it out here.