I've been selling online since 2012. I started with handmade cards on Etsy, moved into handmade jewellery, sold across Etsy, Facebook, my own website and Twitter simultaneously, and have been doing self assessment tax returns ever since.

My husband Ben has sold handmade reclaimed wood furniture on Etsy - pieces with steel legs, some close to £1,000 each - and now runs an Etsy shop selling downloadable shed and garden office building plans.

I also sell our personal preloved items on eBay as a private seller and have been reported to HMRC for hitting the threshold.

So between us, we've covered pretty much every type of online seller there is. And in my experience, the topic of Etsy tax causes more unnecessary panic than almost anything else in the world of side hustles - largely because of one phrase that gets misunderstood constantly: "reported to HMRC."

Let me clear that up first, because it changes everything.

Being reported to HMRC does not mean you owe tax

Since 1st January 2024, online marketplaces including Etsy, eBay, Vinted and Depop are legally required to collect seller data and report it directly to HMRC when sellers hit certain thresholds. I know this because eBay emailed me to let me know they'd passed on my information when I reached the limit as a private seller.

Here's the thing though - that report is just data. It gives HMRC visibility into how much you've sold. It doesn't mean a tax bill is on its way. HMRC then looks at that data and determines whether any tax is actually owed. For many sellers - probably the majority - the answer will be nothing at all.

When the rules first came out in 2024, I remember a lot of people panicking, convinced they'd have to pay tax the moment they hit 30 sales or a certain earnings threshold. That's not how it works. Being reported is not the same as being taxed.

The reporting thresholds are: 30 or more transactions, or earnings of £1,740 or more in a calendar year. Hit either of those and the platform has to report your sales to HMRC. But whether you owe any tax depends entirely on a separate set of questions - which I'll get to below.

The first question: are you trading?

HMRC distinguishes between two types of online seller. You're either trading - buying or making things to sell for profit - or you're a private seller clearing personal possessions.

If you're selling your old clothes, your kids' outgrown toys, some books you've finished with, or stuff you've found in the attic, that's not trading. Those are personal possessions. Selling them is not taxable income, even if you sell more than 30 items, even if you earn more than £1,000 from them, and even if Etsy or eBay reports you to HMRC. The report doesn't change the nature of the sale.

Trading is different. HMRC considers you to be trading if you're:

• Buying items with the intention of reselling them for profit
• Making items - even as a hobby - with the intention of selling them for profit
• Upcycling second-hand goods to sell on
• Running what functions, in practice, like a commercial operation

When I was selling handmade cards and jewellery on Etsy, I was trading. I was making things to sell for profit across multiple platforms. I hit the trading allowance because I was selling across Etsy, my own website, Facebook and Twitter at the same time - a good reminder that HMRC looks at your total income from all sources, not just one platform.

Ben was also clearly trading when he was making reclaimed wood furniture to sell. A handmade oak and steel side table at close to £1,000 a piece is not a hobby. And his current Etsy shop selling downloadable shed plans is a business operation too - digital products are just as taxable as physical ones.

The second question: are you over the £1,000 trading allowance?

Even if you are trading, you may not owe any tax at all. HMRC's Trading and Miscellaneous Income Allowance means you can earn up to £1,000 gross per tax year from trading without needing to declare it or pay tax on it. That's £1,000 in total turnover before any deductions, not profit.

So if your Etsy shop is a small side hustle bringing in under £1,000 a year - even if Etsy reports you for hitting 30 transactions - you don't owe tax and you don't need to file a self assessment for that income.

Once you go over £1,000 though, in total sales turnover, you need to declare your income to HMRC and file tax returns. And at that point, it's worth understanding the different taxes that may apply.

What taxes do Etsy sellers pay?

Income tax

If your total taxable income - from all sources combined - exceeds the personal allowance of £12,570 per year, you'll pay income tax on the portion above that. Here's how the bands currently work:

For most Etsy side hustlers, the relevant calculation is: take your Etsy income that exceeds the £1,000 trading allowance, add it to any other taxable income (such as a salary from employment), and see whether the total exceeds £12,570. If it does, you'll pay tax at the appropriate rate on the portion above your allowance.

If you're employed and your Etsy income pushes you over a tax band threshold, it's worth letting HMRC know so your tax code can be adjusted, or you can declare it via self assessment.

National Insurance contributions

If you're registered as self-employed and earning above the relevant thresholds, you may also owe National Insurance contributions. These are calculated separately from income tax and depend on your profit level. Even if your income falls below the threshold, you may choose to make voluntary contributions to avoid gaps in your National Insurance record that could affect your state pension entitlement later.

Deductible expenses

One of the most important things to know as a trading Etsy seller is that you only pay tax on your profit, not your turnover - provided you're keeping records of your allowable expenses. Deductible costs for Etsy sellers can include:

• Etsy seller fees and transaction charges
• Materials used to make your products
• Packaging and postage costs
• Equipment used in production
• Photography costs for product listings
• Accounting fees
• Marketing costs

Good record-keeping makes a real difference here. Ben keeps track of all his costs for the shed plans business - software, tools, any marketing spend - and deducts them accordingly.

What about VAT?

VAT is only something you need to worry about if your total business turnover exceeds £90,000 in a 12-month period. The vast majority of Etsy sellers - even those running full-time shops - will be well under this threshold. If you do approach it, register with a VAT specialist before you hit the limit rather than after.

Three different types of Etsy seller - and what each means for tax

To make this practical, here are three seller types that, between me and Ben, cover a lot of ground.

The casual private seller

You're selling things you already own - old clothes, vintage finds from your own home, things you no longer need. You're not buying to resell and not making things to sell. This is not trading, and the sales are not taxable. Being reported to HMRC for hitting 30 transactions doesn't change that.

The side hustle seller

You're making or buying things to sell for profit, but it's not your main income. You might be selling handmade jewellery like I did, or reselling vintage items from charity shops, or selling digital downloads like printable planners or sewing patterns. This is trading - but if your total Etsy sales stay under £1,000 gross per year, no tax is due and no self assessment is needed for that income.

Once you go over £1,000, you'll need to declare the excess to HMRC. If you're already employed and doing a self assessment, you'd add it to your return. If not, you'd need to register for self assessment by 5th October following the end of the relevant tax year.

The business seller

You're running what functions as a genuine commercial operation - consistent sales, profit-focused, organised like a business. This is where Ben's furniture shop and digital downloads business sits, and my previous handmade business. Tax applies, self assessment is required, and keeping detailed records of income and allowable expenses becomes really important. A good accountant might be worth every penny at this level.

A note on selling across multiple platforms

If you sell on more than one platform - Etsy and eBay, for example, or Etsy and your own website - HMRC looks at your combined income from all of them, not each one in isolation. My income from cards and jewellery across multiple platforms added up to more than the trading allowance, even though no single channel looked particularly significant on its own.

If you're selling across platforms, add up everything together when working out whether you've hit the £1,000 trading allowance - and keep records for each one.

The bottom line on Etsy tax

The key points to take away:

• Being reported to HMRC does not mean you owe tax
• Selling personal possessions is not trading and is not taxable, regardless of how many items you sell
• If you are trading but earn under £1,000 gross per year, no tax is due
• Once you go over £1,000 in trading income, you need to register for and file tax returns with HMRC
• Tax is paid on profit, not turnover - keep records of your allowable expenses
• If in doubt, contact HMRC directly or speak to an accountant - the rules are less scary than they first appear

If you're just starting out selling on Etsy as a side hustle, the most important thing is to keep a record of what you earn and what you spend. You may well find you stay under the trading allowance for a good while - and even if you do start earning more, knowing the rules means you can plan for it rather than panic about it.

Before you go...

For more on making money from home and managing self-employed income, have a read of how to make extra income while working full time, my guide to selling handmade items locally and online, and everything you need to know about self assessment as a self-employed person.