All You Need to Know About Etsy and Taxes as a Reseller
If you are a reseller on a multi-vendor marketplace platform, you've probably been worried about the financial side of e-commerce. Fortunately, our guide on all things Etsy and taxes will shed light on the most important questions you might have, thus giving you a general idea of how to successfully run your business. Don't worry, we also have some tricks up our sleeves when it comes to boosting sales. But, for now, let's delve into taxes! (yawn!)
First Thing to Remember about Etsy and Taxes - Not All Sellers Need to Pay Taxes For Their Online Shop
In case you are trying to get rid of second-hand clothing that has been taking up space in your closet without any intention of serious profit, the HMRC won't require you to pay taxes. Your trading allowance is £1,000 a year.
However, if you pass this allowance and end up sourcing second-hand clothing and making money from a successful Etsy store by offering your goods and service, then HMRC needs you to declare your income.
What Taxes Does a Reseller Need to Pay While Running an Etsy Shop?
So you might ask - how do I handle licensing and taxes with my Etsy shop? You might feel self-conscious at first, but the process is easy. Everything can be done via the HMRC website. All serious resellers will be obliged to pay National Insurance (Class 2 and Class 4) that will ensure state benefits like state pension and Income Tax.
The profit will determine how much the reseller will owe when it comes to Income Tax. It is the money that is left over when you add your income from your service and subtract the allowances and expenses that can be claimed.
Those considering expanding their e-commerce business would need to register for Value Added Tax (VAT). When you earn over £85,000 reselling used clothes or mesmerizing vintage furniture, following VAT rules is required. This entails submitting a detailed account to HMRC.
Here is a video on how you can make an income over £85,000 by selling your goods or service on Etsy.
What Expenses Can You Claim When You File Your Tax Form?
Are there any Etsy taxes and fees you can deduct? You should know how to calculate exactly since you don't want to lose money that you could have claimed in expenses. Therefore, if particular costs were incurred for the sake of running a successful e-commerce business, you could lower your final bill. The allowable expenses for your business are:
- Supplies and materials,
- Any type of service you invested in for making your products,
- Etsy fees,
- Shipping and packaging costs,
- Costs of advertising and promoting your listings,
- Photography costs,
- Card processing fees.
Tax deductions will help every individual seller, even those who are listing their products on other online marketplace platforms such as eBay, Depop, Shopify, and Vinted. In case you are using a crossposting tool to sell on multiple platforms, you can still claim expenses for your business.
How Can UK-Based Sellers Register With HMRC?
Do you want to increase your Etsy sales and make more than £1,000? Then, this type of self-employment has to be registered with HMRC. By the 5th of October, you will have to register.
There are two business structures you can register as - limited company and partnerships. Deciding how to register depends on how much money you will make as a seller and whether there is a business partner associated with your store. It's best to consult with a financial advisor about which route to take.
You will have to fill out a form on the HMRC website and give accurate information about the business you are running. Bear in mind that the tax year lasts from the 6th of April to the 5th of April the following year.
Keep an accurate record of your sales and expenses. In case you have more than one shop on Etsy, or you are selling on additional online selling platforms, you will benefit from a crossposting app that keeps track of orders for you.
How Do Etsy Resellers File Tax Return?
Do you know how to report Etsy income on taxes? Every year you will have to file a tax return. This entails completing a self-assessment tax return online. Before you start filling out forms, make sure you gather relevant information, such as details about your income, costs, deductions, and bank statements.
Next step is to log into your account on HMRC and select the correct tax form. Choose the right one which is available for businesses such as yours. The form will demand details about your credits, deductions, income, and expenses. Of course, bear in mind that entering the correct figures is of great importance. Once you finish filling out the form, submit it directly via the website.
In case anything is still owed, the deadline for settling them is January 31st. You can pay them online, by post or by phone.
Use a Cross-Posting Software So You Can Track Your Sales Better and Pay Taxes Effortlessly
How can you manage everything? An online store, numerous buyers, sourcing products or making them, as well as filing tax returns with accurate information - being self-sufficient seems almost impossible. Sometimes, it's just too much. However, don't forget about the state benefits you will get by settling your taxes.
An ace up your sleeve can be the cross-listing software that manages online stores for you. Actually, posting listings, securing sales, and delisting products can be done from one place with the help of a crossposting tool.
The best selling software is Zipsale. It will keep all accurate information for you so that when it comes time to submit everything to HMRC, there won't be any issues. Visit Zipsale and register right away!