Online reselling has boomed in the past few years. Marketplaces like Etsy, Vinted, eBay, Depop and Facebook Marketplace have opened the door for people to turn clutter into cash or build an extra income stream.
But as online selling grows, so has the attention from HM Revenue & Customs (HMRC). If you sell regularly online, you might be wondering: Do I need to pay tax? What rules apply? Will HMRC know about my sales?
This blog answers those questions and explains everything you need to know about tax for online marketplace sellers in 2025.
Hobby selling vs running a business
The first thing to work out is whether HMRC sees your selling as a hobby or a business.
- Hobby selling: If you only sell things now and then—like old clothes, furniture, or gadgets you no longer need—you usually don’t have to pay tax. Selling your own belongings isn’t classed as trading.
- Business selling: If you regularly sell items, buy goods to resell, or make products to earn money, HMRC will treat it as a business. In that case, you must report your income.
HMRC uses “badges of trade” to decide. They look at how often you sell, whether you aim to make a profit, and how organised your selling is.
The £1,000 trading allowance
The UK tax system does provide a little flexibility. Every individual benefits from a £1,000 trading allowance each tax year.
This works as follows:
- If your total sales are below £1,000, there’s no need to register with HMRC or pay tax.
- If your sales are above £1,000, you’ll need to register for Self Assessment and report your earnings.
Keep in mind that this £1,000 limit applies to your total sales revenue, not your profit. For example, even if you only earn £200 after costs but your sales add up to £1,500, you’ve still gone over the threshold.
New reporting rules for online platforms
From January 2024, new tax rules known as “The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023”, came into effect. Marketplaces such as eBay, Etsy, Vinted, Depop and Airbnb must now report seller information directly to HMRC.
This includes details such as:
- How many sales have you made
- The total income you’ve earned
- Your seller account information
The rules aim to close tax gaps by making it harder for people to under-declare income. If you sell more than 30 items in a year or earn over £1,000, your details are likely to be shared with HMRC.
So, even if you thought you could “fly under the radar,” that’s no longer realistic.
When tax actually applies
Once you cross the £1,000 threshold, your income could fall into three main tax categories:
1. Income tax (self-employment)
If you sell online regularly, your earnings will usually count as self-employed income. That means you must:
- Register with HMRC as self-employed
- Send a Self Assessment tax return each year
- Pay Income Tax and, in most cases, Class 2 and Class 4 National Insurance
Simply put, if selling is more than a hobby, HMRC treats you as running a business.
2. Capital Gains Tax (CGT)
CGT applies if you sell valuable personal items (worth over £6,000 each) for more than you paid. This could apply to collectables, art, jewellery or designer handbags, but it’s rare for typical second-hand clothing or household items.
3. VAT (Value Added Tax)
If your total turnover (not profit) goes above the VAT registration threshold (£90,000 in 2025), you’ll need to register for VAT. This is only relevant for larger resellers or businesses, but it is worth keeping in mind if you scale up.
What expenses can you deduct?
The good news is that you don’t pay tax on your total sales, only on your profits. You can deduct certain costs from your income, including:
- Purchase costs of items bought for resale
- Materials and tools if you make products
- Packaging and postage costs
- Fees charged by platforms (e.g., Etsy, Vinted, eBay seller fees)
- Office supplies or small equipment
- A portion of home expenses if you run your business from home
Keeping clear records of your expenses is crucial, as they can reduce the tax you end up paying.
Why does record-keeping matter?
HMRC can request evidence of your sales and expenses at any time. To stay safe:
- Download and save monthly or annual sales reports from Etsy, eBay or Vinted
- Keep receipts for anything you buy to resell
- Note down shipping costs, packaging costs and platform fees
- Store your records for at least five years after the filing deadline
Good bookkeeping doesn’t just keep HMRC happy – it also helps you track whether your side hustle is actually making money.
What happens if you ignore it?
Some sellers are tempted to just “hope HMRC won’t notice.” With the new reporting rules, that’s a risky gamble.
If HMRC believes you’ve underpaid tax, you could face:
- Backdated tax bills
- Penalties for late payment or non-disclosure
- Interest on unpaid amounts
In serious cases, tax evasion can even lead to criminal investigation. Far better to stay upfront and compliant.
How to register and pay
If you pass the £1,000 threshold:
- Register as self-employed with HMRC by 5 October after the end of the tax year (5 April).
- Keep records of all sales and expenses.
- If you’re filing online, your Self Assessment tax return must be completed by 31 January annually.
- Pay your tax bill by the same deadline, or set up a payment plan if needed.
Many small sellers also find it useful to open a separate bank account just for their selling activity, which makes it easier to track income and expenses.
Tips for staying on the right side of HMRC
- Start small, but stay organised – even if you’re not sure your hobby will take off, track your sales from day one.
- Use accounting software – platforms like QuickBooks, Xero or even simple spreadsheets can keep you on top of finances.
- Plan for tax – set aside a percentage of your profits (say 20–30%) into a savings account so you’re not caught short at tax time.
- Seek professional advice – If your sales are increasing or you’re unsure about the rules, an accountant can help you stay compliant and save some money.
Conclusion
Platforms like Etsy, Vinted, and eBay are perfect for earning extra cash or starting a side hustle. But as soon as your sales pass £1,000, HMRC expects you to declare your income. With new rules, it’s more important than ever to stay organised. Want to keep it stress-free? Get in touch with us today and we’ll help you handle the tax side.
