Tax, eBay Stores and the HMRC

byDaniel Greenaway/Published:26th September 2025/inEcommerce, Running a business, Self Employed

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Running an eBay store in the UK can be a profitable side hustle or a full-time business. But while listing, selling, and shipping products may be your main focus, understanding your tax responsibilities is just as important. HMRC (His Majesty’s Revenue & Customs) has clear rules for online sellers, and failing to comply could result in unexpected tax bills, penalties, or even investigations.

This post explains everything eBay sellers need to know about tax in the UK whether you’re selling casually, running a part-time eBay shop, or operating as a full business.

Do eBay Store Owners Have to Pay Tax?

The short answer: yes, if you’re trading as a business or earning above certain thresholds.

Many people start selling items on eBay casually maybe clearing out old clothes or gadgets. In those cases, you’re usually not considered a business, and you may not need to pay tax. But once your activity crosses into “trading” (as defined by HMRC), you may need to register for tax.

HMRC’s “Badges of Trade”

HMRC uses indicators known as the “badges of trade” to decide if you’re running a business. You might be classed as trading if:

You regularly buy goods to resell at a profit.
You make items specifically to sell.
You sell items in bulk or with professional packaging.
You reinvest profits into more stock.
You advertise or market your eBay store.

If any of these apply, HMRC is likely to consider your eBay activity a business rather than a hobby.

Useful link: HMRC’s guidance on badges of trade.

The £1,000 Trading Allowance

HMRC provides a £1,000 trading allowance each tax year. If your total sales income from eBay (or other online platforms like Etsy, Vinted, or Depop) is less than £1,000, you don’t need to register for Self Assessment or pay tax on it.

But if your sales are above £1,000, you must declare this income to HMRC, even if your profits are small.

Registering as an eBay Store Owner

If you earn more than the £1,000 trading allowance, you’ll likely need to:

Register as self-employed with HMRC (via Self Assessment).
1. Deadline: 5 October following the end of the tax year you started trading.
2. Register here: https://www.gov.uk/register-for-self-assessment.
Complete an annual Self Assessment tax return.
1. Report your income, expenses, and calculate profits.
2. Pay Income Tax and Class 2/Class 4 National Insurance (if applicable).
Consider forming a limited company if your profits grow significantly.
1. This can be more tax efficient at higher levels of profit.

What Taxes Do eBay Store Owners Pay?

Depending on your circumstances, you may face:

Income Tax – on profits above the Personal Allowance (£12,570 for 2025/26).
National Insurance Contributions (NICs) – if your profits are above £6,725 (Class 2) and higher thresholds for Class 4.
Value Added Tax (VAT) – if your turnover exceeds the £90,000 VAT threshold (2025/26).
Corporation Tax – if you incorporate your eBay business as a limited company.

VAT for eBay Sellers

VAT can be complex for eBay store owners, especially if selling internationally. Key points:

You must register for VAT if your taxable turnover exceeds £90,000.
Once registered, you must charge VAT on sales and submit VAT returns (usually quarterly).
eBay now handles VAT collection on certain cross-border sales (especially EU transactions after Brexit).
If you import goods from outside the UK, import VAT and customs duties may apply.

Useful link: HMRC VAT guidance for goods sold online.

Allowable Expenses for eBay Store Owners

The good news: you can deduct allowable business expenses from your taxable income, reducing your tax bill.

Examples include:

Cost of goods or stock.
eBay fees and PayPal/transaction fees.
Packaging, shipping, and postage.
Home office costs (a portion of bills, broadband, rent).
Marketing and advertising costs.
Software or accounting tools (like The Balance App).

Tip: Always keep receipts, invoices, or digital proof of expenses. Poor record-keeping is one of the top mistakes eBay sellers make.

Making Tax Digital (MTD) and eBay Stores

HMRC’s Making Tax Digital (MTD) initiative means many businesses must keep digital tax records and file returns using software.

If you’re VAT registered, MTD already applies.
From April 2026, MTD for Income Tax Self Assessment (MTD ITSA) will apply to self-employed businesses earning over £50,000.
From April 2027, it will extend to those earning over £30,000.

This means most established eBay store owners will soon need to use digital accounting tools to stay compliant.

Useful link: HMRC’s Making Tax Digital overview.

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Common Mistakes eBay Store Owners Make

Even experienced eBay sellers can stumble when it comes to tax compliance. HMRC has access to sales data directly from eBay and PayPal, so overlooking your obligations isn’t an option. Here are the most frequent mistakes to avoid:

Failing to declare income
Many sellers assume HMRC won’t notice small-scale selling, but online platforms are legally required to share transaction data. If you’re over the £1,000 trading allowance, failing to declare your earnings could result in penalties and backdated tax bills.
Mixing business and personal accounts
Running your sales through a personal bank account makes it difficult to track profits accurately and risks confusion if HMRC ever inspects your records. Always keep a dedicated business account for transparency and easier bookkeeping.
Claiming non-allowable expenses
You can only deduct costs that are “wholly and exclusively” for business use. Trying to claim personal shopping trips, family holidays, or everyday household bills can backfire if challenged by HMRC. Stick to legitimate expenses such as stock, eBay fees, packaging, and postage.
Overlooking VAT responsibilities
VAT isn’t just for large businesses. If your sales approach the £90,000 threshold, you need to monitor your turnover carefully. Selling internationally, especially to the EU, adds complexity, as eBay may collect VAT at source on certain transactions. Failing to understand this can mean underpaying tax or overcharging customers.
Keeping poor or incomplete records
Disorganised receipts, missing invoices, or gaps in your sales logs can result in disallowed expense claims and inaccurate tax returns. HMRC requires you to keep records for at least five years after the submission deadline. Digital bookkeeping software can help prevent this mistake.
Missing HMRC deadlines
Filing Self Assessment tax returns late or forgetting to pay on time leads to automatic fines and interest charges. The Self Assessment deadline is 31 January for online returns and payments mark it in your calendar well in advance.

By avoiding these pitfalls, you’ll protect yourself from unnecessary penalties, keep your tax bills accurate, and run your eBay store like a professional business.

How HMRC Tracks eBay Sellers

Don’t assume HMRC won’t notice. eBay and other online platforms share seller data with HMRC under “platform reporting” rules. This means HMRC can see your sales totals and match them to your Self Assessment.

Failing to declare your earnings could result in penalties up to 100% of the tax owed, plus interest. In extreme cases, it could trigger a tax investigation.

Practical Tips for Staying Compliant

Staying on the right side of HMRC doesn’t need to be complicated. The key is to get organised early and treat your eBay store as a proper business from day one. Here are the best practices every seller should follow:

Register with HMRC as soon as you pass the £1,000 trading allowance
Don’t wait until the deadline approaches register promptly to avoid fines and unnecessary stress. Registering early also gives you access to Self Assessment services and allows you to set up systems for tracking income straight away.
Keep your finances separate with a dedicated business bank account
Mixing personal and business transactions is one of the fastest ways to lose track of your tax position. A business account provides clarity, makes bookkeeping simpler, and helps you appear more professional when dealing with suppliers and customers.
Invest in accounting software to track sales, expenses, and profit margins
Platforms like The Balance App, Xero, or QuickBooks integrate with eBay, PayPal, and bank feeds, giving you real-time insights into your store’s performance. These tools also ensure compliance with Making Tax Digital (MTD)
Set aside money for tax throughout the year
A common mistake is to spend all your profits without preparing for the tax bill. Aim to ring-fence 20–30% of your profits in a separate savings account. This way, you’ll have funds ready for Income Tax, National Insurance, and possibly VAT, without scrambling at year-end.
Keep detailed records of every transaction
Save digital invoices, receipts, shipping costs, and eBay fees. HMRC expects records to be accurate and complete for at least five years after the submission deadline. Good record-keeping also makes it easier to claim all your allowable expenses.
Understand VAT obligations early even if you’re under the threshold
Knowing how VAT works on imports, cross-border sales, and digital services can help you prepare for growth. Don’t wait until you hit the £90,000 threshold to start thinking about VAT registration.
Work with a professional accountant
An accountant who understands online selling can do more than just file your tax return they can help you structure your business efficiently, maximise expenses, and plan for VAT or company incorporation as your store grows.

Resources for eBay Store Owners

HMRC Trading Allowance: https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
HMRC Self Assessment: https://www.gov.uk/self-assessment-tax-returns
HMRC VAT Guidance: https://www.gov.uk/vat-registration
Making Tax Digital: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

Conclusion

Selling on eBay can be a rewarding business venture but understanding your tax obligations is just as important as finding the right products to sell.

By keeping proper records, registering with HMRC when required, and claiming the right expenses, you can avoid penalties and keep more of your hard-earned profits. With Making Tax Digital on the horizon, digital compliance will become the norm for eBay store owners so the earlier you prepare, the smoother the transition will be.

At Accounting Wise, we specialise in helping online sellers and eBay store owners manage their tax, bookkeeping, and HMRC compliance.

Struggling with eBay tax compliance? Let Accounting Wise help you manage your HMRC obligations with ease.

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Essential Tax FAQ’s for Ebay Store Owners

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Do I need to pay tax if I only sell a few items on eBay?

If you’re just selling personal belongings occasionally, you usually won’t need to pay tax. But if you’re buying to resell, selling regularly, or running a store, HMRC may class you as trading, and tax rules will apply.

What is the £1,000 trading allowance?

The trading allowance lets you earn up to £1,000 in sales per tax year from side hustles like eBay, Etsy, or Vinted without paying tax. Above this threshold, you must declare income to HMRC.

How do I know if HMRC considers my eBay store a business?

HMRC uses “badges of trade” such as buying stock to resell, selling in bulk, or marketing your store. If these apply, you’re likely trading as a business.

How do I register my eBay store with HMRC?

If your sales exceed £1,000, you need to register as self-employed by 5 October following the end of the tax year you started trading. This is done via HMRC’s Self Assessment system.

What taxes do eBay store owners pay?

Depending on your setup, you may owe Income Tax, National Insurance, VAT (if turnover exceeds £90,000), or Corporation Tax if you incorporate as a limited company.

Do I have to register for VAT if I sell on eBay?

Not always. You only need to register once your taxable turnover exceeds £90,000 in a 12-month period. But if you sell internationally, eBay may collect VAT on your behalf in some cases.

What expenses can I claim as an eBay seller?

Common allowable expenses include stock costs, eBay and PayPal fees, packaging and postage, home office costs, marketing, and software like accounting tools.

How does Making Tax Digital affect eBay sellers?

If you’re VAT registered, you must already comply with MTD. From April 2026, self-employed eBay sellers earning over £50,000 will need to keep digital records and file via MTD-compatible software.

Can HMRC see my eBay sales?

Yes. eBay and PayPal share transaction data with HMRC under platform reporting rules. This means HMRC can check your sales against your tax return.

What happens if I don’t declare my eBay income?

You risk penalties, backdated tax bills, and interest charges. In serious cases, HMRC could launch a tax investigation.

Should I separate personal and business finances?

Absolutely. Having a dedicated business bank account makes bookkeeping easier, keeps records clear, and reduces problems if HMRC ever inspects your accounts.

How can Accounting Wise help eBay store owners?

We specialise in supporting online sellers with bookkeeping, Self Assessment, VAT, and Making Tax Digital compliance. We also advise on business structure and help maximise allowable expenses.

Glossary of Key Terms for eBay Store Owners

Term	Definition
Badges of Trade	HMRC’s indicators to decide if you’re trading (e.g. buying stock to resell, regular sales, marketing your store).
Trading Allowance	A £1,000 tax-free allowance per year for casual or hobby sales. Over this, income must be declared.
Self Assessment	HMRC’s system where self-employed sellers report income, expenses, and pay tax.
Income Tax	Tax on profits above the personal allowance.
National Insurance (NICs)	Contributions paid if profits exceed thresholds (Class 2) and higher thresholds for Class 4.
VAT (Value Added Tax)	A sales tax charged on goods/services. Mandatory registration if turnover exceeds £90,000.
Corporation Tax	Tax paid on profits if your eBay store is incorporated as a limited company.
Allowable Expenses	Legitimate costs like stock, packaging, eBay/PayPal fees, and postage that reduce taxable profit.
Making Tax Digital (MTD)	HMRC’s digital record-keeping system for VAT and soon Income Tax. Requires MTD-compatible software.
HMRC	His Majesty’s Revenue & Customs, the UK’s tax authority that oversees compliance for online sellers.
Tax Year	UK tax year runs from 6 April to 5 April. Used to calculate income and file Self Assessment.
eBay Fees	Charges applied by eBay for listings, final value, promoted listings, and subscription plans.
PayPal / Transaction Fees	Processing fees for handling payments through PayPal or other providers linked to your store.
Inventory	The stock of goods you purchase and hold for resale on eBay.
Dropshipping	A sales model where you list items on eBay, but a supplier ships directly to the customer. Still taxable as trading income.
Import VAT	VAT charged on goods brought into the UK from overseas suppliers.
Customs Duty	Additional charges payable on imported goods, depending on product type and value.
Business Bank Account	A separate account for your eBay income/expenses, making records clearer for HMRC.
Platform Reporting	Rules where eBay shares seller data directly with HMRC to prevent undeclared income.
Digital Bookkeeping	Using accounting software (e.g., The Balance App, Xero, QuickBooks) to record sales, expenses, and stay MTD compliant.
Gross Income	Total sales revenue before any expenses or fees are deducted.
Net Profit	What’s left after deducting allowable expenses and fees from sales income.
Personal Allowance	The tax-free threshold (£12,570 for 2025/26) before Income Tax is charged.
Limited Company	A separate legal entity that can run your eBay store, offering tax efficiency and limited liability.
Bookkeeping Records	Invoices, receipts, and sales logs that HMRC requires you to keep for at least 5 years.

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