You’re selling online, the money’s coming in, and you’re quietly wondering whether HMRC has noticed. The answer is yes, here’s what to do about it.
The £1,000 trading allowance and where it catches people out
This is the one most online sellers have heard of, and the one most misunderstood. The trading allowance is a flat £1,000 annual exemption for self-employment income. If your total gross income from online selling (or any self-employed activity) is under £1,000 in a tax year, you don’t need to report it to HMRC or pay any tax on it.
That sounds generous. And for occasional sellers, it genuinely is. But here’s what most people miss: the allowance is against gross income, not profit. So if you turn over £1,200 selling second-hand clothes on Vinted but your actual profit after postage, packaging, and original purchase costs is only £300, you’ve still crossed the threshold. The cost of your stock doesn’t get deducted before the £1,000 limit applies.
Once your sales income exceeds £1,000, you may need to:
- Register for Self Assessment.
- Declare your trading income to HMRC.
- Calculate and pay tax on any taxable profit.
It is important to note that the £1,000 threshold relates to income (turnover), not profit.
Platform Reporting Rules
Since January 2024, online marketplaces have been required to collect and report information about certain sellers to HMRC under international digital platform reporting rules.
A platform may report your details if you have:
- More than 30 sales transactions during the calendar year, or
- More than €2,000 (approximately £1,700) of sales proceeds.
This reporting requirement does not mean you automatically owe tax. It simply allows HMRC to receive information about sellers who may have taxable trading income.
Are you counting gross sales or actual profit when you think about whether you’ve crossed the threshold? There’s a good chance the number you have in your head is wrong.
When does HMRC actually want to hear from you?
Once your gross trading income from online selling exceeds £1,000 in a tax year, you need to register for Self Assessment and file a tax return. Not might need to. Need to. HMRC’s official guidance is clear on this, and the narrative that “it’s just a hobby” only holds up if the numbers genuinely don’t cross that line.
|
Situation |
What applies |
Action needed |
|
(Gross trading income under £1,000) |
(Trading allowance no tax due) |
(No return needed) |
|
(Gross income £1,001–£12,570 within personal allowance) |
Must register for Self Assessment |
Register & file |
|
Gross income above £12,570 |
Income Tax applies to profits above the personal allowance |
Register, file & pay |
|
Gross turnover over £90,000 |
Mandatory VAT registration threshold |
Register for VAT |
|
Sole trader profits over £12,570 |
Class 4 National Insurance (6% up to £50,270; 2% above) |
NI due via return |
One thing that surprises people: you can owe zero tax and still need to file a return. If you made £7,000 profit from your Etsy shop, you’re within the personal allowance, and no Income Tax is due, but HMRC still expects to see the return. Filing late carries a £100 automatic penalty, even if you don’t owe a penny.
Deadline reminder
The Self Assessment registration deadline is 5 October, following the end of the tax year in which you started trading. If you started selling online in the 2025/26 tax year, you need to register by 5 October 2026. Online returns are due by 31 January 2027.
What eBay, Vinted, and Amazon are now telling HMRC
This is the part of the conversation where a lot of people’s expressions change. Since January 2024, digital selling platforms operating in the UK are legally required to collect and report seller data directly to HMRC under DAC7, the EU-derived data-sharing rules that the UK adopted into its own legislation after Brexit.
In plain terms, eBay, Vinted, Etsy, Amazon, Airbnb, Deliveroo, and others are sending HMRC a list of sellers who made more than 30 sales or earned more than €2,000 (roughly £1,700) in a calendar year. HMRC already has the data. They’re comparing it to returns filed or not filed.
Example Situation
A client came to us in early 2025, a teacher in her early thirties who’d been selling vintage furniture on eBay for three years as a side income. She’d made around £4,000 each year, never registered for Self Assessment, and assumed the small scale meant she was invisible. She wasn’t.
HMRC sent a nudge letter in March 2025 referencing her eBay income data, which the platform had reported under DAC7. We helped her file three years of returns, claim legitimate expenses, and submit a voluntary disclosure. The bill was manageable, but the stress and back-interest weren’t nothing. She’d have been far better off registering the moment she crossed £1,000.
The lesson isn’t that HMRC is vindictive. It’s that the “I’ll deal with it later” strategy stopped working sometime around late 2023.
Not just selling goods
DAC7 reporting covers gig economy income, too Uber, TaskRabbit, Fiverr, and similar platforms must report UK-based earners to HMRC. If you have multiple side income streams, each one counts toward your total self-employment income for the trading allowance calculation.
The VAT threshold and why “under £90k” isn’t always a safe zone
The mandatory VAT registration threshold in the UK sits at £90,000 on a rolling 12-month basis. Cross it, and you must register within 30 days of the point at which you crossed. Miss that window and HMRC can backdate the registration, bill you for the VAT you should have charged, and add penalties on top.
The part most people get wrong is the rolling 12-month calculation. It doesn’t reset in April. Every single month, HMRC wants you to look back at the previous 12 months of gross turnover. If you hit £89,000 in one big January and crossed £90,000 by February, that’s your registration trigger, not the end of the tax year.
“HMRC doesn’t wait for your financial year to close. The VAT clock runs continuously, every month, looking back twelve months.”
Here’s what most people miss: voluntary VAT registration is available below £90,000, and for business-to-business sellers, it can actually be an advantage. VAT-registered businesses can reclaim input tax on their purchases of stock, shipping supplies, software, and accountancy fees. If your supplier costs are high, voluntary registration sometimes makes financial sense before you’re legally required to do it.
- Monitor monthly: Add up your gross sales for the past 12 months at the end of each month, not just at year’s end.
- Count gross, not net: Your VAT threshold is measured against gross turnover before fees, returns, or cost of goods.
- Know your 30-day window: Registration must happen within 30 days of the month in which you exceeded the threshold.
- Check zero-rated goods: Some products (children’s clothing, most food) are zero-rated, which affects your VAT position even once registered.
- MTD applies from day one: As a VAT-registered business, your records must be digital and your returns submitted via HMRC-compatible software.
Registering as a sole trader: what it actually means day to day
A lot of people hear “register as a sole trader” and imagine a complicated process full of legal paperwork. It isn’t. Registering with HMRC for Self Assessment takes about ten minutes online, costs nothing, and doesn’t change what you’re legally allowed to sell or how you operate. It just means HMRC knows you exist and expects an annual tax return from you.
What registration does unlock is the ability to claim legitimate business expenses against your taxable profit. Stock costs, postage, packaging, listing fees, accountancy fees, and a proportion of your home broadband if you work from home, all of these reduce the profit figure you’re taxed on. Without registration, you can’t claim any of them. You’re taxed on gross income (above the £1,000 allowance) with no deductions.
In my experience
The sellers who lose the most money to tax are rarely the ones who registered too early. They’re the ones who delayed, didn’t track their expenses, and then discovered they owed tax on a profit figure that was inflated because they couldn’t claim back costs they’d genuinely incurred. Good records from day one change everything.
One more thing worth knowing: as a sole trader with profits above £12,570, you’ll pay Class 4 National Insurance on top of Income Tax 6% on profits between £12,570 and £50,270, then 2% above that. It’s not huge, but it surprises people who’ve only ever thought about Income Tax rates. Factor it into your margin calculations.
If HMRC already has your platform sales data and you haven’t filed, what’s your plan?
The honest verdict
Here’s my take, and I’m not going to soften it: the era of casual online selling with no HMRC footprint is over. It ended when DAC7 came into force, and it’s not coming back.
That isn’t a reason to panic. It’s a reason to get organised, and getting organised is genuinely simple at most scales. Register for Self Assessment once you cross £1,000. Keep basic records of income and costs from the start. Watch your rolling 12-month turnover. Use an accountant who understands e-commerce if the numbers start getting meaningful.
The bottom line
The sellers who struggle aren’t the ones earning the most. They’re the ones who treated tax as something to deal with later.
Later always arrives, usually with a letter from HMRC and a deadline attached.
Registering early costs you very little. Registering late, after HMRC has already seen your platform data, costs you a lot more financially, in time and in stress. The path forward is obvious once you stop treating compliance as a threat and start treating it as the foundation of a properly run business.
If you’re unsure where you stand right now, that uncertainty is itself the answer. Sort it. The rules aren’t punishing; HMRC isn’t trying to crush side hustles. They just expect honesty. And once you’ve got your records straight, the whole thing is far less frightening than it seems from the outside.
Not sure where you stand? Talk to SKZ Accountants.
We’re specialist accountants in the UK working with UK online sellers at every stage from the first £1,000 of eBay income to multi-channel operations with complex VAT obligations. We’ll tell you exactly where you stand, what you owe, and how to stay compliant going forward without the jargon.
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