If you haven’t heard of Etsy before you probably soon will. Since its 2005 inception as an online craft place, this popular buying and selling platform now boasts a whopping 4.4 million active sellers and 80 million+ active buyers from across the globe.
What you can do with Etsy
Basically, Etsy is a giant online marketplace consisting of multiple shops packed with unique items, which are usually handmade or vintage. It’s a place for cool and quirky gifts and homeware, offering the buyer something one-off and different. For sellers, it’s the perfect opportunity to turn a hobby into an income, whether part-time or even full time.
How much money are we talking here?
How long is a piece of string? Some people make an extra £30 – £50 a month while others make enough to jack in the 9-5 and go full time. Not many of us are likely to become a millionaire by selling on Etsy, but the extra income can certainly be handy.
But, as you’re over the age of 18, you’re expected to pay tax on your income, so we’re often asked how this affects you as the taxpayer even though it’s not technically your income.
Will I need to tell HMRC about Etsy income if I register for my child?
The vague answer is maybe. Put aside who that income actually belongs to (because HMRC don’t really care – as far they’re concerned, it’s in your name, and that’s that). What really matters at this point is how much this ‘self-employed’ activity earns you.
Is it less than £1,000 a year? There’s a trading allowance!
Thanks to the trading allowance, if your trading income (the total pre-tax amount you make from self-employed work) is £1,000 a year or less, then you may not need to tell HMRC at all. This applies, even if you also work for an employer.
What if the income is higher than the trading allowance?
If your child’s Etsy earnings are above £1,000 in a tax year, you – as the named Etsy account-holder – will need to register for Self Assessment as a self-employed person.
Again, HMRC won’t want to know that it’s your child doing all the work of making and listing their products. The Etsy account is in your name and linked to your bank account, therefore you’re responsible. HMRC sees you as self-employed, not your child.
Over the phone using the HMRC helpline for the newly self-employed
By filling in the on-screen form, printing it off, and posting it to HMRC
You’ll be given a Unique Taxpayer Reference (UTR) number which identifies your tax account. Keep this safe! You’ll need it to sign in and submit your Self Assessment tax returns (which you must do in order to pay tax and National Insurance on the untaxed income).
Ideally, you should register with HMRC as soon as possible, and no later than 5th October following the end of the tax year in which you started self-employment.
How does this affect my tax bill?
If the total amount you earn is less than the Personal Allowance in a tax year (currently £12,570), then you don’t have to pay tax. Going over this threshold means you’ll start paying tax at a rate of 20% – yep, even if that includes Etsy earnings!
Working out tax
The amount of tax that you pay is worked out by adding together all of your income, deducting any tax you’ve already paid (such as via your employer), and then deducting any allowances or expenses. The amount remaining is then multiplied by the tax rate which applies to the proportion of earnings within each tax band.
A note on the Personal Allowance, trading allowance, and expenses
It’s worth noting that you can use your Personal Allowance and the trading allowance. So, you can earn over the tax-free threshold, and still have that £1,000 allowance which covers your self-employed income.
If you go over the trading allowance, you can still offset the allowance against your income, or you can claim your expenses against your income. You can choose which option you go with – so make sure it’s the one which is most beneficial for your tax bill.
An example of how it works
You work for an employer on a part-time basis, and earn £11,500 in one tax year (which runs from 6th April to 5th April). Your child is using your Etsy account to sell their craft products, and over that same tax year they earn £3,000. Top marks to them!
This means you effectively earned £14,500 (£11,500 + £3,000).
Deduct the Personal Allowance (£12,570), which leaves £1,930.
And then (assuming you decide not to count your expenses) deduct the £1,000 trading allowance, which leaves £930.
You’ll pay tax on that £930 at a rate of 20%. Your self-employed income doesn’t meet the National Insurance threshold, but you can still make voluntary contributions if you want to.
It’s up to you whether you simply pay the tax, or decide to deduct the tax and National Insurance from any Etsy income before passing it on to your child.
What if I’m already a taxpayer?
Even if you already pay tax, the same principle applies. As far as HMRC are concerned, this is additional income, and you’ll pay tax on it. Just remember that you can still claim the trading allowance on self-employed income, even if you also work for an employer.
But… Remember we mentioned about expenses?
When running a business (which is effectively what you’ve doing), HMRC allows you to subtract some of the costs of running your business from your turnover. This then reduces your tax bill. These costs are known as “allowable expenses”.
Unfortunately, not every single thing you spend money on will be an allowance expense. This makes it really important to know what is claimable and what isn’t. Thinking about Etsy, there are quite a few expenses that may be tax deductible in this way.
Typical allowable expenses with Etsy
Etsy fees: We talked about Etsy fees earlier, and the good news is you can deduct the fees that Etsy charges to sell on their website. This includes the cost of publishing the listing, and the transaction fee they charge each time something is sold.
Things you buy to sell on: This would be raw materials and stock
Printing and copying: Perhaps your child prints some adverts with their Etsy shop details on, to put through local doors. If they use your home printer, paper, and ink then these are all tax deductible.
Office costs: You may not have a home office as such, but anything like pens, pencils, notepads etc. that you use as part of your Etsy business are also tax deductible.
As your business is very likely to be homebased, you may also be able to claim a proportion of your costs for things like heating, Council Tax, electricity, internet, and mortgage interest or rent.
How you divide your costs is largely up to you, but you need to be reasonable and able to provide evidence if asked. Many people do it by working out what each room in their house costs to ‘run’ and apportioning it accordingly based on the amount of time the room is used for business. Our team will be happy to help you with this if you’re not sure.
The above list acts as a guide and HMRC may add to or change it at any time. That’s why it’s a good idea to use the ‘Expenses if you’re self-employed’ page on the GOV.UK website to stay up to date.
Does Etsy charge seller fees?
Yes, it does. In fact, Etsy’s fees are kind of complicated, especially when you compare them to many other selling sites. When someone buys from your Etsy shop, there are different types of fee which might apply.
A listing fee
Every time you put an item up for sale, it costs 15 pence. Each listing will last for 4 months or until the item sells – whichever happens first.
Listings can be set up to auto-renew if you have more than one item available, but that’s an extra 15 pence which is payable when the item sells.
A transaction fee
Etsy charges people selling on their site 5% of each item’s sale price (including packaging and postage fees). This is paid at the point the item is sold.
A payment processing fee
This is 20 pence + 4% of the entire payment (including postage).
Offsite ads fee (optional)
If you ask Etsy to advertise your listings, you’ll need to pay 15% on sales that were the result of an advert. You don’t have to have your products advertised if you don’t want to.
An example of Etsy fees in practice
Let’s say you sell something for £10 plus £2.99 postage, and the sale wasn’t from an offsite advert.
The listing fees are 15 pence, and on top of that you’ll pay 65 pence in transaction fees and 72 pence as a payment processing fee. The total of this is £1.52 which, if your child is making lots of items and they’re selling well, can soon add up.
Fortunately, you’re allowed to deduct costs such as listing fees, packaging, and postage, from your tax bill as expenses. You can only claim either the trading allowance or expenses, not both! So work out which is higher, and claim that.
Will it affect the High Income Child Benefit charge?
If you or your partner are currently claiming child benefit, and you earn just less than £50,000 already, then this bit is for you.
Go over £50,000 in total income and you may have to pay a tax charge, known as the ‘High Income Child Benefit Charge’. This will apply if you have an individual income of more than £50,000 and either:
You or your spouse/partner receive child benefit
Someone else gets child benefit for a child who lives with you, and they contribute towards the child’s maintenance equally
If you’re claiming Universal Credit, the amount you receive depends largely on how much you earn. As your Etsy income will need to be declared, your Universal Credit payment will gradually reduce as your earnings go up. For every £1 you earn, your UC payment reduces by 55 pence.
If you’re on legacy benefits (like Jobseeker’s Allowance and Employment and Support Allowance) and haven’t moved over to Universal Credit yet, these could reduce too. However, this really depends on your own individual circumstances, so head to Citizen’s Advice.
It’s also well worth using a benefits calculator to see how increasing your income by selling your child’s items on Etsy will affect what you get.