If your Etsy or Shopify sales are trading income, tax is due from the first pound — the £1,000 trading allowance removes the paperwork, not the liability. That distinction catches out more small sellers than any other rule, and it is the one HMRC’s platform data is most likely to surface.
Here is what actually applies, in the order it applies to you.
Are you trading, or clearing out the loft?
Selling your own used possessions is not trading. Selling things you made or bought with the intention of selling them on at a profit generally is.
HMRC does not decide this on volume alone. It applies a set of indicators long established in case law and set out in its Business Income Manual as the “badges of trade”. The ones that matter most to online sellers:
- Profit-seeking motive — did you buy or make it intending to sell?
- Frequency and number of transactions — a repeated pattern points to trade
- Modification of the asset — buying, improving and reselling looks like trade
- Length of ownership — a short gap between acquisition and sale points to trade
- The way the sale is organised — branding, listings, marketing and a shop front all point to trade
No single badge decides it. A handmade jewellery shop on Etsy is trading. Selling twelve items of your own old clothing is not, even if the total is meaningful. Where genuine doubt exists — reselling a collection you have held for years, say — take advice rather than assuming either answer.
The £1,000 trading allowance
If your gross trading income for a tax year is £1,000 or less, you do not need to register for Self Assessment or report it. Gross means before expenses, before platform fees, before postage.
Above £1,000, you must register. You then have a choice each year:
| Option | How it works | Best when |
|---|---|---|
| Claim the trading allowance | Deduct a flat £1,000 from gross income. No expense claims at all. | Your real expenses are under £1,000 |
| Deduct actual expenses | Claim allowable business costs as normal | Your real expenses exceed £1,000 |
You cannot do both. For a maker buying materials, actual expenses usually win. For a service-based side income with almost no costs, the allowance usually wins.
The trading allowance is still £1,000 — and the £3,000 figure in the headlines is a different measure. £3,000 is an announced Self Assessment reporting threshold: the level of trading income below which you would not have to file a return. It is not an increase to the trading allowance, which is the statutory deduction in Part 6A of ITTOIA 2005. It also has no legislated commencement date — the only official timing is “within this parliament”. A great deal of published content merges the two and implies the change is already live. It is neither the same relief nor yet in force, and when the reporting threshold does arrive it removes the requirement to file a return, not the tax itself.
Register by 5 October following the end of the tax year in which the income arose. Income in 2026/27 means registering by 5 October 2027. Sole traders use form CWF1, which registers you for Self Assessment and Class 2 National Insurance together.
Income tax and National Insurance on the profit
Your trading profit is added to your other income and taxed at your marginal rate.
| 2026/27 | Figure |
|---|---|
| Personal Allowance | £12,570 |
| Basic rate (20%) | £12,571 – £50,270 |
| Higher rate (40%) | £50,271 – £125,140 |
| Additional rate (45%) | Above £125,140 |
| Class 4 NIC | 6% on £12,570 – £50,270, then 2% |
| Class 2 NIC | Treated as paid at profits of £7,105 or more; voluntary at £3.65 a week below that |
If you have a job as well, your Personal Allowance is usually already used by your salary — so the shop’s profit is taxed from the first pound at 20% or above, plus Class 4.
Payments on account catch people out in year two. If your Self Assessment bill exceeds £1,000 and less than 80% of your tax was collected at source, you pay half of it again on 31 January and again on 31 July. The first January bill can be 150% of the tax you were expecting.
VAT: the £90,000 rolling test
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period, or when you expect to exceed it in the next 30 days alone.
Rolling means exactly that. It is not your accounting year. You check every month, looking back over the previous twelve. A strong Christmas can push a seller over in February who was comfortably under in December.
Turnover means gross sales, not the money the platform pays you. Marketplaces deduct fees before settling, and recording only the net deposit understates turnover — enough to hide a breach of the threshold entirely.
Two further points:
Marketplace VAT collection is not universal. Where a marketplace is the deemed supplier — broadly, goods outside the UK at the point of sale in a consignment of £135 or less sold to a GB customer, or UK-held goods sold by a seller not established in the UK — it accounts for the VAT. A UK-established seller shipping UK stock accounts for its own.
Digital products have their own rules. Downloads, patterns and templates supplied to consumers are digital services, and the place of supply is where the customer is located. That can create obligations outside the UK.
Once registered, VAT returns are filed under Making Tax Digital, due one calendar month and seven days after the period end. The deregistration threshold is £88,000.
Platform reporting: what HMRC already sees
Digital platforms report seller data to HMRC by 31 January following the end of the calendar year. Sellers are outside the reporting requirement only where they made fewer than 30 sales of goods and received under €2,000 in the year — both conditions, not either.
The data covers your identity, bank details and the amounts credited to you, and is matched against Self Assessment records.
Whether a specific platform reports depends on whether it meets the definition of a reporting platform operator — marketplaces that connect buyers and sellers and handle payment generally do; software that simply hosts your own storefront may not. Do not read “my platform doesn’t report” as “HMRC will not find out”. Bank data, card acquirer data and HMRC’s own information powers exist independently.
Reporting is not a new tax. It changes visibility, not liability.
Records you must keep
Keep, per transaction: gross sale value, platform and processor fees, shipping and packaging, cost of materials or goods, refunds and returns, and the date.
Retention: five years after the 31 January filing deadline if you are self-employed. Keep the raw platform reports, not just summaries — summaries get restated.
Making Tax Digital for Income Tax is live. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 (measured on the 2024/25 return) keep digital records and file quarterly updates by 7 August, 7 November, 7 February and 7 May, plus a year-end return. The £30,000 tier follows on 6 April 2027 and £20,000 on 6 April 2028. HMRC writes to confirm when you are in scope.
Frequently asked questions
Do I have to declare Etsy income under £1,000?
No. If your gross trading income for the tax year is £1,000 or less you do not need to register for Self Assessment or report it. Gross means before deducting fees, postage or materials. Above £1,000 you must register, by 5 October following the end of that tax year.
Is selling my own old clothes on a marketplace taxable?
Generally not. Selling your own used possessions is not trading. It becomes trading when you buy or make things with the intention of selling them at a profit, and HMRC weighs a set of indicators — profit motive, frequency, how the sale is organised — rather than counting listings.
Does the platform pay my VAT for me?
Sometimes. A marketplace accounts for the VAT where goods are outside the UK at the point of sale in a consignment of £135 or less sold to a GB customer, and where UK-held goods are sold by a seller not established in the UK. A UK-established seller selling UK stock accounts for its own VAT.
When do I have to register for VAT?
When your taxable turnover exceeds £90,000 in any rolling 12-month period, or when you expect to exceed it in the next 30 days alone. It is measured on gross sales, not on the net amount the platform settles to you, and it is tested monthly rather than at your year end.
Will HMRC find out about my shop?
Digital platforms report seller data to HMRC by 31 January following the end of each calendar year, unless you made fewer than 30 sales of goods and received under €2,000. That data is matched against Self Assessment records. Reporting does not create a new tax — it makes existing obligations visible.
Getting it filed properly
Most online sellers are not trying to avoid anything. They are unsure whether they crossed a line, and which one. The answer is usually simpler than the worry.
SmartFiling handles Self Assessment and MTD for Income Tax on a fixed fee, including quarterly updates where MTD applies. Every submission is reviewed by an ICAEW Chartered Accountant.
