Do I need to pay tax on online earnings? UK tax rules for selling online

Who needs to pay tax on online sales?

If you sell items online in the UK, whether it’s through a website, social media, a selling platform like eBay or Etsy or an e-commerce platform like Shopify, you might need to pay tax on what you earn.

But not every sale is taxable. To find out if what you’re selling is, ask yourself:

• Am I just selling old personal items I no longer need?
• Or are you buying or making items with the aim to sell for a profit?

If it’s the first, for instance if you’re decluttering your home, you may not need to pay tax.

If it’s the second, HMRC might consider you to be trading. That’s when tax usually starts to apply.

Rules for selling personal possessions

Personal possessions are things you own for your own use, such as clothes, furniture, jewellery and gadgets.

If you sell these items, you usually don’t have to pay income tax, even if you sell lots of them. So, if you clear out your garage and sell old bikes, games and kitchenware, you probably won’t owe any tax.

If you sell something for more than £6,000, you might have to pay Capital Gains Tax. This rule also applies to sets of items, like a collection of stamps or matching chairs. For example, if you sell a painting for £7,000, you’ll need to check if tax applies because it’s worth more than £6,000.

How much can I earn before I have to pay income tax?

Your ‘trading allowance’ lets you personally earn up to £1,000 a year from selling things online without having to tell HMRC or pay tax. If you earn more than that, you’ll need to:

• Register with HMRC
• Submit a self assessment tax return
• Pay income tax on your profits (after deducting any costs you’ve paid)

The tax year runs from 6 April to 5 April. If you go over the limit, register for self assessment by 5 October following the end of the tax year.

What tax do I pay if I sell online?

The tax you’ll pay depends on how much you earn and how you set up your business. Here are the main taxes to keep in mind.

Income tax

If you’re a sole trader (you haven’t registered a company), you’ll pay income tax on your profits after you’ve taken off your business expenses.

You’ll also need to pay Class 2 and Class 4 National Insurance if your profits go over certain levels.

For the 2025/26 tax year:

• You can earn up to £12,570 before paying income tax
• Profits above this are taxed at 20%, 40% or 45%, depending on your total income

Use HMRC’s online calculator to estimate how much tax you’ll pay.

Corporation tax

If you start a limited company to sell online, you pay tax differently than if you're a sole trader. As the boss, you can pay yourself a salary and, if the company makes extra money, you can also get dividends. You pay personal tax on your salary and dividends.

The company must pay corporation tax on its profits. Profits over £250,000 are taxed at 25% but it’s less if profits are lower. You need to keep good records and send reports to HMRC. It’s advisable to seek professional advice from an accountant if you decide to set up a company as the rules are quite complex.

What is VAT and when does it apply?

Value Added Tax (VAT) is a tax added to most sales of goods and services. You don’t need to register for VAT unless your VAT taxable turnover goes over £90,000 in a 12-month period or you expect it to do so.

If you’re under that limit, registration is optional. Some sellers register voluntarily because it can help with reclaiming VAT on business costs. It also avoids leaving it until near the threshold, which can catch some businesses out.

Once you’re VAT registered, you’ll need to:

• Add VAT to your prices (usually 20%)
• Submit regular VAT returns to HMRC
• Pay what you owe or reclaim what you’re owed

Again, it’s advisable to seek professional advice from an accountant if you decide to register for VAT as the rules are quite complex.

What happens if I sell to customers abroad?

If you sell things to people in other countries, there might be extra taxes and forms to fill in. You may need to add customs forms to your parcels. What’s more, the buyer you’re sending to might have to pay more money before they get their item.

Since Brexit, selling to the EU means you’re now an exporter. Your goods will be checked at the border and you might need to pay extra charges. Make sure you fill in the right forms and check the rules for each country you send to, as they can vary.

Most things you send from the UK to other countries don’t have VAT added but you must keep proof that you exported them. Selling a lot to one country may mean you need to sign up for VAT there.

How to reduce the tax you pay

You only pay tax on your profits, not your total sales. So you can take your allowable expenses away from your income before working out what tax is due.

Allowable expenses might include:

• The cost of stock or materials
• Postage and packaging costs
• Fees from online platforms or payment services
• Internet and phone costs
• Marketing or design costs

Keep all receipts and records to prove your expenses. If you forget to register or pay tax, you could get fines and interest charges. Register for VAT as soon as you go over the threshold or anticipate you will, or sooner if you prefer.