Selling online is the easy part. Working out the tax on what you sold is where most new sellers get stuck — and where mistakes get expensive. Whether you sell on Etsy, eBay, Shopify or your own website, HMRC taxes your profit, not your sales total, and the rules change depending on whether you trade as a sole trader or through a limited company.
The short answer: as a UK online seller, you pay tax on your profit (sales minus allowable expenses). Sole traders pay Income Tax and National Insurance through Self Assessment, while limited companies pay Corporation Tax on company profits. You must also register for VAT once your taxable turnover passes £90,000 in a rolling 12 months. The rest of this guide walks through each piece, with worked £ examples, so you can see roughly where you stand.
What Counts as Business Tax for an Online Seller?
Business tax is not one single tax. For an online seller it usually means a combination of these:
- Income Tax (sole traders and partners) or Corporation Tax (limited companies) on profit.
- National Insurance contributions on sole trader profits.
- VAT, if you are registered, charged on your sales and reclaimed on business purchases.
- PAYE and employer National Insurance, only if you employ staff.
Your marketplace fees, postage, packaging and stock costs do not disappear from the tax picture — they reduce your taxable profit, which is why keeping records matters from day one. If you are new to the basics, our guide to how business tax works explains the overall system in plain English before you get into the seller-specific detail below.
One early check that saves many sellers a registration headache: the trading allowance. If your total gross trading income in a tax year is £1,000 or less, you generally do not need to tell HMRC about it or pay tax on it, at the time of writing. Once you pass £1,000, you need to register for Self Assessment as a sole trader, even if your profit after expenses is small.
Sole Trader or Limited Company: Which Tax Applies?
Most online sellers start as sole traders because it is simple: you register with HMRC, keep records, and file one Self Assessment return a year. A limited company is a separate legal person, so the company pays its own tax and you pay personal tax only on what you take out as salary or dividends.
| Sole trader | Limited company |
|---|---|
| Tax on profit: Income Tax + National Insurance via Self Assessment | Corporation Tax on company profit |
| 2026/27 headline rates (at the time of writing): 20% basic rate Income Tax above the £12,570 personal allowance, up to £50,270 | 19% on profits up to £50,000; 25% above £250,000, with marginal relief in between |
| Main return: Self Assessment tax return | Company Tax Return (CT600) plus annual accounts |
| Key deadlines: Register by 5 October after the tax year ends; file and pay by 31 January | Pay Corporation Tax 9 months and 1 day after the accounting period ends; file the return within 12 months |
| Admin burden: Low | Higher — Companies House filings as well as HMRC |
The Corporation Tax figures in the table are confirmed on the official GOV.UK corporation tax rates page. Rates and thresholds can change at Budgets, so always check the current figures before you finalise a return — a Budget was due the day after this guide was written, on 28 October 2026.
VAT: The £90,000 Line Every Seller Must Watch
VAT catches many growing sellers by surprise because it is based on turnover, not profit. At the time of writing, you must register for VAT if your taxable turnover in the previous 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. Once registered, you charge VAT on your sales, reclaim VAT on business purchases, and file VAT returns — usually quarterly.
Three seller-specific points matter here. First, track your rolling 12-month turnover monthly, not just at year-end, because a busy Christmas quarter can push you over the line mid-year. Second, marketplace sales still count towards your turnover for this test. Third, registering voluntarily below £90,000 can suit sellers whose customers are mostly VAT-registered businesses, but it adds admin, so take advice before volunteering.
Allowable Expenses: What an Online Seller Can Claim
You are taxed on profit, so every legitimate business cost you record lowers your bill. Typical allowable expenses for an online seller include:
- Stock and materials you buy to sell
- Marketplace and platform fees, including listing and transaction fees
- Postage, packaging, courier and returns costs
- Website hosting, domain, apps and software subscriptions
- A fair share of home costs if you work from home, such as a proportion of heating and electricity
- Phone and internet costs used for the business
- Accountancy and bookkeeping fees
You cannot claim personal spending, fines, or stock you still hold at year-end in the same way as stock you have sold. Keep invoices, receipts and bank statements organised as you go: sole traders should keep records for at least 5 years after the 31 January filing deadline, and companies for 6 years from the end of the accounting period.
Worked £ Examples
Example 1: Sole trader with £30,000 profit
Imagine you are a sole trader with £30,000 of taxable profit in 2026/27. After the £12,570 personal allowance, £17,430 is taxable at the 20% basic rate, giving Income Tax of £3,486. That is Income Tax only — National Insurance is charged on top, at the current Class 4 rates, so your total bill will be higher. The point of the example is the method: allowance first, then the rate on what is left, never the rate on your full sales figure.
Example 2: Limited company with £40,000 profit
Now imagine the same £40,000 of profit inside a limited company. At the 19% small profits rate, Corporation Tax is £40,000 × 19% = £7,600, leaving £32,400 in the company. That is not money in your pocket yet — taking it out as salary or dividends can trigger further personal tax, which is why comparing a sole trader bill with a company bill needs both layers counted, not just the first one.
Example 3: The VAT threshold in practice
A seller averaging £8,000 of taxable sales a month reaches £96,000 in a rolling 12 months and must register for VAT. A seller averaging £6,000 a month reaches £72,000 and does not, even though both sellers may feel equally busy. Turnover, not profit, is the trigger — a high-volume, low-margin shop can cross the VAT line while a lower-volume, high-margin shop does not.
5 Mistakes That Cost Online Sellers Money
- Mixing personal and business money. Use a separate bank account for the shop, even as a sole trader. Mixed accounts make every expense harder to prove.
- Forgetting marketplace fees. Your sales dashboard shows gross sales, not what you kept. Fees are a cost, but only if you record them.
- Ignoring the rolling VAT window. Checking turnover once a year is how sellers register late and face penalties.
- Leaving records until January. Reconstructing a year of orders under deadline pressure is when expenses get missed and errors creep in.
- Treating all sales as UK sales. Selling to customers overseas can have different VAT and customs rules — check the rules for each destination rather than assuming UK rules travel with the parcel.
Frequently Asked Questions
Do I need to pay business tax if I only sell occasionally on eBay or Vinted?
If your gross trading income is £1,000 or less in a tax year, the trading allowance generally means no registration or tax is due on it. Above £1,000, register for Self Assessment and report the income, even if it started as a hobby.
Is my Etsy or eBay income taxed differently from my own website’s income?
No. HMRC taxes the profit from all your trading income together. The platform changes your fees and records, not the tax rules — though marketplaces may report seller data to HMRC, so your return should match your platform records.
When do I need to register for Self Assessment as an online seller?
Register by 5 October following the end of the tax year in which your trading income passed £1,000. For the 2026/27 tax year, that deadline is 5 October 2027, and the return and payment are then due by 31 January 2028.
Should I form a limited company just to pay less tax?
Not automatically. A company can save tax at higher profit levels, but it brings Companies House filings, statutory accounts, and tax on money you take out. Compare the full cost of both routes at your actual profit level, and get advice before incorporating purely for tax reasons.
Conclusion
Business tax for UK online sellers comes down to three habits: know which structure you trade under, track profit rather than sales, and watch the £90,000 VAT line as you grow. Register on time, record every fee and postage cost, and set aside money for your tax bill as each sale lands — a separate savings pot for tax turns January from a crisis into a routine payment.
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