Etsy Tax Guide 2026/27
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
Etsy is a global marketplace focused on handmade, vintage, and craft items. UK sellers use Etsy to sell everything from jewellery and art prints to personalised gifts and digital downloads. It attracts buyers looking for unique, non-mass-produced goods.
How Much Tax Will You Pay on Etsy Income?
If you earn through Etsy as a self-employed seller, you pay Income Tax and Class 4 National Insurance on your profits — not your gross earnings. The £1,000 trading allowance means the first £1,000 of income is tax-free. Above that, you deduct either the allowance or your actual expenses, whichever is higher, to arrive at your taxable profit. Use our side hustle tax calculator to get an instant estimate for 2026/27.
Basic rate taxpayer
20% + 6%
Income Tax + Class 4 NI on profit between £12,570 and £50,270
Higher rate taxpayer
40% + 2%
Income Tax + Class 4 NI on profit between £50,270 and £125,140
Trading allowance
£1,000
Tax-free — no Self Assessment below this
A Typical Year on Etsy: Worked Example
Assumes a handmade jewellery shop with about 10 hours a week of making and packing, where materials, Etsy fees, postage and a small ad budget absorb half of sales. The figures below assume you also have a £28,000 PAYE job, so your Personal Allowance is already used and every pound of profit is taxed. They are produced with the same 2026/27 tax functions as our side hustle tax calculator.
If Etsy were your only income, the £12,570 Personal Allowance would cover the whole profit and no income tax would be due at this level.
What Etsy Reports to HMRC
Etsy reports UK shops under the digital platform rules, and because most Etsy sellers are makers rather than clearing out cupboards, the report usually reflects genuine trading income. For physical goods the standard exclusion applies: fewer than 30 orders and under about €2,000 (roughly £1,700) in a calendar year keeps you off the report, but both conditions must hold. Etsy's own notice adds that made-to-order digital items count as a service with no minimum, so a shop selling custom files can be reported from its first order. Etsy collects your National Insurance number through Shop Manager, files the previous calendar year's figures with HMRC by 31 January and gives you a copy; the amount is gross of listing, transaction and processing fees.
Getting Started: Staying Compliant from Day One
- 1
Register as self-employed once gross Etsy sales pass the £1,000 trading allowance; makers rarely stay below it long, so do it by 5 October after your first tax year ends.
- 2
Complete the legal and tax information section under Finances in Shop Manager early, so Etsy never pauses deposits while chasing your details.
- 3
Download the monthly statement from your Payment account and the orders CSV; together they give sales, fees, postage labels and refunds in one place.
- 4
Keep a materials log of what you paid for beads, fabric, packaging and print runs; under the cash basis those purchases are deductible when paid.
- 5
Watch rolling 12-month turnover against the £90,000 VAT registration threshold as the shop grows.
Common Mistakes Etsy Sellers Make
- Declaring only what Etsy deposits: HMRC's copy is gross, so declare gross sales and claim the fees or the figures will not reconcile.
- Taking the trading allowance when materials and fees are worth far more than £1,000 as actual expenses.
- Treating Etsy Ads and Offsite Ads charges as personal marketing spend rather than a deductible business cost.
Allowable Expense Deductions for Etsy
These expenses reduce your taxable profit. Keep receipts for all claims.
Earning and Tax Tips for Etsy Sellers
- Etsy sellers making handmade goods are almost always trading, so you will likely need to register as self-employed if you earn over £1,000.
- SEO matters hugely on Etsy — research keywords that buyers use and include them in your titles, tags, and descriptions.
- Offer digital downloads (printables, templates, SVG files) for passive income with no postage costs.
- Factor in all Etsy fees when pricing — the combined fees can total 12–15% of the sale price.
Frequently Asked Questions
Is selling on Etsy considered self-employment?
Yes, in most cases. If you are making items to sell or buying vintage items to resell, you are trading and must register as self-employed with HMRC if your income exceeds the £1,000 trading allowance. You will need to file a Self Assessment tax return and pay income tax and National Insurance on your profits.
How do Etsy fees affect my tax?
Etsy fees (listing fees, transaction fees, payment processing fees, and advertising costs) are all allowable business expenses that reduce your taxable profit. Keep records of all fees — Etsy provides a monthly statement in your Payment Account dashboard that you can use for your tax return.
Do I need to charge VAT on Etsy sales?
You only need to register for and charge VAT if your taxable turnover exceeds the VAT threshold (£90,000 per year). Below this threshold, VAT registration is voluntary. Etsy itself charges VAT on its fees to UK sellers, and this is shown on your Etsy fee invoices.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Tools & Guides
Benefits Calculator
Low Etsy earnings? Check Universal Credit and other benefit entitlements.
Take-Home Pay Calculator
Also have a PAYE job? See your combined income after all deductions.
Side Hustle Tax Guide 2026
Complete guide to Self Assessment, the trading allowance, and Class 4 NI.
Making Tax Digital for Side Hustles
MTD for Income Tax applies from April 2026 if your sole trader income is over £50,000 — what it means for you.