How to Start an Online Shop in the UK: Tax and Bookkeeping Guide

The Accounted Business Team·20 March 2026·5 min read

From Side Hustle to Proper Business

Maybe it started with selling a few handmade candles on Etsy. Or clearing out your wardrobe on eBay. Or listing some vintage finds on Depop. At some point, you looked at your sales figures and thought: "Hang on, this might actually be a business."

The shift from casual selling to running a proper online shop brings new responsibilities — registering with HMRC, tracking expenses, understanding VAT, and keeping records that satisfy Making Tax Digital requirements. But it doesn't have to be overwhelming.

This guide covers everything you need to know about the tax and bookkeeping side of running an online shop in the UK.

When Does Selling Online Become a Business?

The Trading Allowance

HMRC gives everyone a £1,000 trading allowance each tax year. If your total online selling income is under £1,000, you don't need to register as self-employed. This covers genuine casual selling — the odd bit of furniture, clothes you no longer want.

When You Cross the Line

You're running a business — and need to register — when you:

Buy items specifically to resell them
Make items to sell (crafts, art, food, clothing)
Sell regularly and consistently
Treat it as a source of income rather than a clear-out

The £1,000 threshold is about total income (turnover), not profit. Sell £1,200 of handmade jewellery but spend £800 on materials? You've still exceeded the allowance.

Bottom line: if you're reading this guide, you're almost certainly running a business. Register as a sole trader.

Registering as a Sole Trader

Registration is free and takes about ten minutes on the HMRC website. You need to register by 5 October following the end of the tax year in which you started trading.

Our guide to starting a freelance business covers the registration steps in detail — they're the same regardless of business type. You should also understand your obligations under Making Tax Digital and check whether you need compatible software.

Platform Fees as Business Expenses

Every platform takes a cut. The good news: these fees are fully deductible. Here's what the major platforms typically charge:

Etsy

Listing fee: £0.16 per item
Transaction fee: 6.5% of the sale price (including postage)
Payment processing: 4% + £0.20 per transaction

eBay

Insertion fees (above your free allowance)
Final value fee: typically 10–13% depending on category

Amazon

Referral fees: 7–15% depending on category
Individual plan: £0.75 per item, or Professional plan at £25/month
FBA fees if Amazon handles fulfilment

Shopify

Monthly subscription from £25
Transaction fees: 2% unless using Shopify Payments

These fees add up quickly. On a £20 Etsy item, you might pay £2–£3 in combined fees. Tracking them properly matters — they're legitimate expenses that reduce your tax bill.

Stock and Cost of Goods Sold

If you sell physical products, understanding stock is essential.

Cost of Goods Sold (COGS) is the direct cost of producing or acquiring items you've sold — raw materials, wholesale prices, direct manufacturing costs. COGS is deducted from revenue to calculate gross profit. It's arguably your most important expense category.

Stock Valuation

At the end of each tax year, value your unsold stock at the lower of cost or net realisable value. Unsold stock isn't an expense until it's sold — so investing heavily in stock at year-end won't immediately reduce your tax bill.

Track purchases with enough detail to calculate COGS accurately: what you bought, how much you paid, and the quantity.

Postage and Packaging Expenses

Shipping costs are fully deductible:

Royal Mail and courier costs — every postage fee
Packaging materials — boxes, jiffy bags, tissue paper, tape, labels
Branded packaging — custom boxes, stickers, thank-you cards
Equipment — postage scales and label printers

If you offer free shipping, it still comes out of your pocket — and it's still deductible. Just price your products to absorb it.

VAT on Online Sales

When to Register

You must register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period. You can register voluntarily below this if most of your customers are VAT-registered businesses. Our VAT registration guide covers this in detail.

Digital Products

Selling digital products (ebooks, courses, digital art) means different VAT rules. Digital products sold to UK consumers are subject to 20% VAT. Sales to EU consumers may require registration for the EU's One Stop Shop (OSS) scheme.

Marketplace Rules

On platforms like Amazon and eBay, the platform may collect VAT on your behalf in certain circumstances. As a UK seller, you're still primarily responsible for your own VAT obligations.

International Sales and Tax Implications

Selling internationally means new considerations:

Customs declarations for items shipped outside the UK
Export documentation — commercial invoices for international shipments
Import duties your customers may face, potentially leading to refused deliveries
Currency conversion — convert foreign currency payments to GBP using the exchange rate on the transaction date

If international sales are significant, it's worth speaking to a specialist. Our guide on whether you need an accountant can help you decide.

Connecting Your Shop to Accounted

The biggest bookkeeping challenge for online sellers is volume. Fifty sales a week across multiple platforms means hundreds of transactions per month — each with fees, postage costs, and COGS to track.

This is exactly what Accounted is built for.

Automatic bank sync — every payment, fee, and refund flows in automatically.
Smart categorisation — Penny, our AI bookkeeper, learns your patterns. She knows the Etsy payment is a platform fee, the Royal Mail charge is postage, and the Hobbycraft purchase is materials.
Receipt capture via WhatsApp — snap a receipt and message it to Penny. She reads it, categorises it, and matches it to the bank transaction.
Real-time profit tracking — see actual profit after COGS, fees, and expenses. Not just revenue.
Tax estimates — know what you'll owe based on actual trading performance. Our guide to payments on account explains advance tax payments.
MTD-compliant — your digital records meet HMRC requirements, ready for quarterly submission.

Running an online shop is brilliant fun when the orders are rolling in. The bookkeeping should never be the thing that takes the joy out of it.

Ready to simplify your bookkeeping? Try Accounted free for 14 days →

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