Under specific circumstances UK Etsy Sellers Need to Pay Tax to HMRC.  Etsy’s rapid growth has attracted the attention of HMRC. So if you have or are planning to become a UK Etsy Seller then you should make yourself aware of the tax rules that will affect you.

Who Needs to Pay Tax

Almost everyone needs to pay tax and declare their income to HMRC, regardless of age or status.  But there are some specific circumstances where UK Etsy Sellers may be able to avoid doing this.

Which UK Etsy Sellers Need to Pay Tax to HMRC

HMRC are prescriptive with the rules to decide which UK Etsy Sellers need to pay tax.  These rules are called HMRC Badges of Trade.

The HMRC Badges of Trade determine whether a UK Etsy Seller is in business to make money or selling as a hobby.  If a UK Etsy Seller is deemed to be in business then they will need to pay tax to HMRC.

Here are the questions HMRC will ask to work out whether a UK Etsy Seller is in business:

  • Are you selling regularly to make a profit?
  • Do you buy stock and hold onto it?
  • Do you make items to sell on at a profit?
  • Are you a registered business on Etsy?
  • Do you buy things at wholesale to sell on?
  • Are you working towards creating a brand?

If you are unsure whether your Etsy Shop is a hobby or business then you should definitely seek professional advice.  There are penalties for failing to register as a business.

The £1,000 Trading Allowance for UK Etsy Sellers

If you are a new UK Etsy Seller then the £1,000 trading allowance may help you.  HMRC launched a new tax allowance called the Trading Allowance in 2017. It’s aimed at micro businesses like those on Etsy to help simplify taxes. This allowance means that if you make sales in your store of less than £1,000 you don’t need to tell HMRC about it.

The rules of the HMRC £1,000 Trading Allowance are very strict and using it is not always tax efficient.  You can read more about the HMRC £1,000 trading allowance here.

Don’t Bury Your Head in the Sand

Taxes are annoying and can be costly, especially if you are in the early stages of a business.  But don’t take the risk of hiding from HMRC.  The rapid growth of Etsy in the UK has caught the attention of HMRC.  HMRC have noticed a rise in the number of online sellers using platforms like Etsy to make money but failing to pay tax.  The result is that HMRC have forced Etsy to work along side HMRC or face penalties themselves, disclosing records of sellers income.  With your Etsy income being so easy to track it is definitely advisable to get your business registered with HMRC sooner rather than later.

How to Register Your Etsy Shop as a Business with HMRC

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.