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A Guide to Etsy Tax Deductions

Filing an incorrect tax return can set you back thousands of pounds if you are not familiar with Etsy tax deductions. The business of selling home products, necklaces, and bracelets can fall through if you don't learn how to navigate the taxation process. If you are a top online reseller, you will have to pay Income, National Insurance, VAT, and even Corporation Tax. Here is our guide on how to save money.

Office items used for making products for sale
An e-commerce business will fall through due to taxation if you don't know about deductions

First Things First, What Are Tax Deductions?

Tax deductions are costs that taxpayers can subtract from their taxable income in order to lower their tax liability. For the taxpayer's job or business, these costs must be deemed "ordinary and necessary," or they have to be related to the generation of income.

However, it's crucial to remember that not every expense is deductible because there are particular limitations and rules about what you can deduct. Furthermore, tax laws and regulations change every year, so it's advisable for every reseller to stay informed.

A calculator next to a notebook
As a reseller on an online marketplace platform like Etsy, learn about current laws

Sustain Your Online Shop Through Etsy Tax Deductions

It's more than obvious that running an online store on any online marketplace platform, including Etsy, comes with challenges and numerous running costs that grow as time passes. If you are new to the entire online selling industry, don't get discouraged right away

What can help you keep growing and prospering are - you guessed it right - tax deductions. Whether you are a vintage clothing reseller or an authentic shoe reseller, you'll be allowed to deduct some costs from the taxable profit in case they are eligible expenses.

So, here is a simple example. Say you have earned £50,000 this past year by running a successful Etsy shop - you might be able to claim as much as £9,000 just in expenses and then only pay for £41,000 in taxes.

One might ask - does this apply to all online platforms? For example, is there an eBay tax exempt as well? Yes, this applies to all resellers on all platforms, so there are eBay business tax deductions as well.

A woman working on a laptop
Don't overpay your taxes. Use online selling tools and have better control of your stores.

What Does the UK Government Consider Allowable Expenses That You Can Deduct From Your Tax?

The UK government is clear on what self-employed individuals and e-commerce businesses can claim in expenses. It's necessary to bear in mind that funds that are taken from a business to pay for something you need in your personal life are not deductible. In fact, these costs include:

  • Travel costs - parking, bus fares, fuel,
  • Staff costs - salaries,
  • Marketing and advertising - website costs,
  • Office costs - stationary and other necessary equipment,
  • Clothing costs - these would include funds for uniforms.

Individuals who work from home might be eligible for deducting a part of the cost for things such as:

  • Heating,
  • Electricity,
  • Internet use,
  • Telephone use,
  • Mortgage or rent.

Etsy Sellers Can Deduct Etsy Fees

Posting listings and garnering sales on Etsy is impossible without paying fees associated with listing items and reselling them as well. As a UK-based seller, you will be eligible for deducting at least a portion of the cost of the fees since e-commerce businesses need to continue being present on the site. It's best to consult with an accountant and professional about how much you can deduct from taxes when it comes to Etsy fees.

If you are wondering are eBay fees tax deductible as well, the answer is yes - the rules apply to all platforms, but consulting with a professional is a must.

Two women looking at a laptop
Don't forget that the charges imposed by the platform will take away from the profit

Spending Too Much on Shipping? Don’t Worry Because Shipping Costs Can Be Tax Deductible

Shipping costs may be considered a business expense, and the resellers are allowed to deduct them from the e-commerce business's taxable income. However, if you'd like to claim shipping costs as a tax deduction, you are obliged to keep an accurate record of your shipping costs, such as receipts, invoices, and proof of sales. This can be challenging if you have more than one shop, so using a crossposting app is advisable.

Bear in mind that only the amount of the actual shipping costs can be deducted and not the amount charged to the customer if you charge your buyers for shipping.

Man preparing the package for shipment
Keep a detailed expense record with a crossposting tool and garner more sales in no time

Deduct Cost For Your Supplies and Materials Before You File Taxes

We know that arts and crafts are the best-selling items on this multi-vendor marketplace platform. Sometimes it can take resellers a lot of money to create their products since supplies and materials are often expensive. That is why necessary supplies for sustaining an online business can be tax deductible for resellers in the UK. These include packaging materials, printing supplies, raw materials, and other supplies used in the production.

Does Everything Count as Supplies for Your Products? Only the Supplies You Use for Your Etsy Business Can Be Tax Deductible

An owner must remember that for the supplies cost to be deducted from final taxes. The materials have to be exclusively and wholly used for related business purposes and not for personal use. For instance, an item can be used both for storage and personal purposes; however, only the portion you are using for sustaining your online store can be deducted.

Person holding paint brushes
Make sure that materials and supplies are used for products you will sell online 

If You Work From Home, Office Expenses Can Be Claimed

If a UK-based seller operates their online store from a home office, they can claim a portion of their home expenses as a tax deduction, based on the proportion of their home used for business purposes. These types of costs include rent, mortgage, utilities such as electricity, water, gas, insurance, internet charges, and related maintenance. We recommend you consult a professional for taxes about how much home office expenses you can deduct.

Laptop next to a notebook and computer
Keep in mind that funds spent on your home office expenses are deductible

Using Depop and Shopify Along With Etsy? Use a Crosspoting App to Keep Track of Sales

Successful e-commerce businesses need to be present on multiple platforms. If you sell just on Etsy, the amount that is subjected to taxation will harm the store. With the help of software for selling online, such as Zipsale, you can avoid this issue and start operating on eBay, Shopify, Depop, and other platforms. We guarantee that you'll be satisfied with the profit a multichannel listing software can secure. The cross-listing software connects platforms and makes your listing visible to millions of shoppers. Don't miss an opportunity to grow your business from year to year. Register with Zipsale on time and let your store take off.

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