If you run an online shop — from a spare room, a studio or a kitchen table — tax can feel like the least creative part of the business. Yet it is also the part that catches many women-led shops out, not because anyone is trying to avoid it, but because no one explained, in plain words, which taxes apply to an online store and when each one starts.
Short answer: In 2026/27, a women-led online store in the UK pays tax on its profits, not on its total sales. A sole trader pays Income Tax (and National Insurance) on shop profits through Self Assessment; a limited company pays Corporation Tax on company profits instead. VAT only enters the picture once taxable turnover passes £90,000 in a rolling 12 months.
First, which setup are you in?
Almost every UK online seller starts in one of two setups, and the setup decides which tax bill arrives. A sole trader is not a separate legal person from you: you and the shop are the same for tax purposes. A limited company is a separate legal person: the company earns the money, pays its own tax, and then pays you.
| Setup | Main tax on profits | How you pay it |
|---|---|---|
| Sole trader | Income Tax + National Insurance | Self Assessment tax return |
| Limited company | Corporation Tax on company profits | Company Tax Return to HMRC |
| Either setup, if turnover is high enough | VAT on taxable sales | VAT return, usually every 3 months |
Neither setup is “the women’s option” or “the right option” for every shop. The right choice depends on your profit level, whether you want limited liability, and how much admin you are willing to take on. What matters for tax is simply knowing which column you are in — because the rates, deadlines and forms are completely different. For the general picture for all sellers, see our guide to business tax for UK online sellers.
If you are a sole trader: Income Tax on your profit
As a sole trader, HMRC taxes your shop profit: your sales minus your allowable business costs. Allowable costs for an online shop usually include stock, packaging, postage, marketplace and platform fees, website costs, and a fair share of phone and internet use. They do not include personal spending, even if it passes through the same bank account — which is why a separate business bank account, or at least a clean record of shop transactions, saves so much pain at tax-return time.
For 2026/27, the standard Personal Allowance is £12,570. In England, Wales and Northern Ireland, profit above that is taxed at 20% up to £50,270 of total income, then 40% up to £125,140, then 45% above that. Only the slice of profit inside each band is taxed at that band’s rate — crossing into the higher-rate band does not re-tax everything below it. National Insurance is charged separately on trading profits above the threshold, so your total bill is Income Tax plus National Insurance, not Income Tax alone.
Worked £ example: sole trader shop
Say your shop sells £60,000 in a year and spends £22,000 on stock, packaging, postage and fees. Your profit is £38,000. Take off the £12,570 Personal Allowance and £25,430 is taxable, all inside the basic-rate band at 20% at the time of writing. That is £5,086 of Income Tax, before National Insurance. If your profit were £55,000 instead, the slice above £50,270 would be taxed at 40% — a good reason to check your profit before the year ends, not after it.
If you are a limited company: Corporation Tax first
A limited company does not pay Income Tax on its profits. It pays Corporation Tax, and the rate depends on how much profit the company makes. For Corporation Tax years starting 1 April 2026, the small profits rate is 19% for profits of £50,000 or less, and the main rate is 25% for profits above £250,000, with marginal relief smoothing the rate in between, as GOV.UK Corporation Tax rates set out.
Worked £ example: limited company shop
Say your limited company’s shop makes £38,000 of taxable profit in the year. At the 19% small profits rate, the Corporation Tax bill is £7,220, leaving £30,780 in the company. That is not yet money in your pocket: taking money out as salary is taxed like employment income, and taking it as dividends is taxed separately under the dividend rules. Many small company owners take a mix of the two, and an accountant’s hour here often pays for itself — the cheapest legal mix depends on your other income, which no general guide can guess.
The company also has its own deadlines: annual accounts for Companies House and a Company Tax Return for HMRC. Miss those and the penalties arrive whether the shop is trading well or not, so diarise them the day you incorporate, not the month they fall due.
VAT: the £90,000 threshold every online seller should know
VAT is not a tax on your profit. It is a tax on your taxable sales, and you only have to register once your taxable turnover passes £90,000 in any rolling 12-month period at the time of writing. You then have 30 days to register, and you must start charging VAT from the date registration takes effect.
That rolling 12-month test surprises online sellers more than any other rule. It is not “£90,000 in a tax year” or “£90,000 since you started”. If your last twelve months of taxable sales — including marketplace sales that count towards the threshold — pass £90,000 in November, November is when the clock starts, even if the previous tax year was quiet. The standard VAT rate is 20%, although some goods (for example, certain children’s clothes and most food) are zero-rated or reduced-rated, so what you sell changes what you charge.
Voluntary registration is possible below the threshold, and it sometimes makes sense: a VAT-registered shop can reclaim VAT on stock, packaging and equipment. But it also means charging VAT on sales to customers who cannot reclaim it, and filing regular VAT returns. Do not register voluntarily just because a supplier or a marketplace mentions VAT — run the numbers for your own margins first.
The key 2026/27 figures in one place
| Figure (2026/27, at the time of writing) | Amount |
|---|---|
| Personal Allowance | £12,570 |
| Basic-rate Income Tax (England, Wales & NI) | 20% on income £12,571–£50,270 |
| Higher-rate Income Tax | 40% on income £50,271–£125,140 |
| Corporation Tax, small profits (up to £50,000) | 19% |
| Corporation Tax, main rate (over £250,000) | 25% |
| VAT registration threshold | £90,000 taxable turnover, rolling 12 months |
| Standard VAT rate | 20% |
How much should you set aside?
A simple habit prevents the most common shock: the January tax bill. Many sole-trader shop owners set aside 20–30% of every payout into a separate savings pot, then adjust once they know their real rate. A shop with £38,000 of profit and a £5,086 Income Tax bill (plus National Insurance) is setting aside roughly a fifth of profit; a higher-earning shop, or a company owner taking dividends, may need more. The pot is not a tax calculation — it is a cash-flow habit that stops a good Christmas trading period from turning into a stressful January.
Keep records as you go: every sale, every cost, every fee statement from your marketplace or payment provider. HMRC expects you to keep business records, and clean records also mean you claim every allowable cost you are entitled to — stock you forgot, postage you paid personally, software you use for the shop. At Self Assessment time, the online deadline is 31 January following the tax year, and late filing brings penalties even if no tax is due.
Common mistakes women-led online shops make
First, treating marketplace payouts as profit. The payout is sales, not profit — stock, fees and postage come off first, and tax is charged on what is left. Second, mixing personal and shop money in one account, which makes both the tax return and any later question from HMRC far harder. Third, ignoring the rolling VAT threshold until a marketplace or an accountant flags it, by which time the 30-day registration window may already be tight. And fourth, assuming that because a friend’s shop is a limited company, yours should be too. The tax saving of a company only appears at certain profit levels, and it comes with accounts, filings and separate money — a trade, not a free win.
FAQ
Do I pay business tax on my sales or on my profit?
On your profit: sales minus allowable business costs. A shop with £60,000 of sales and £22,000 of costs is taxed on £38,000 of profit, not on £60,000.
When do I have to register for VAT as an online seller?
When your taxable turnover passes £90,000 in a rolling 12-month period at the time of writing. You then have 30 days to register with HMRC.
Is a limited company better for tax than being a sole trader?
It depends on your profit. A company pays Corporation Tax at 19% on profits up to £50,000, but taking money out is taxed again, and the admin is heavier. Below steady, modest profits, sole-trader simplicity often wins.
How much of my shop income should I set aside for tax?
As a starting habit, 20–30% of profit in a separate pot, adjusted once you know your real bill. That covers Income Tax for most basic-rate sellers, with National Insurance on top.
Start with one number this week
You do not need to master the whole tax system to run a compliant shop. This week, work out one number: your profit for the last twelve months — sales minus stock, packaging, postage and fees. That single figure tells you whether you are near the VAT threshold, which tax band you are in, and whether a conversation about going limited is even worth having yet. Tax is part of running a real business, and a women-led online store that knows its numbers is a store that can plan, price and grow with confidence. This guide is general information, not tax advice — for your own circumstances, check GOV.UK or speak to an accountant.
