Etsy for UK sellers: VAT, the threshold, and the fee nobody mentions

Updated September 14, 2026 · 8 min read · Sources checked on publication

Two separate things get muddled under “Etsy and VAT” for UK sellers: whether you need to register, and the VAT Etsy charges you on its own fees. They have different thresholds, different consequences, and one of them has a fix that takes two minutes and most sellers never make.

Part one: the VAT Etsy charges you

Start here, because it’s the part you can act on today. Etsy’s Fees & Payments Policy states that fees listed in it are exclusive of VAT, and that VAT is collected on Etsy fees for sellers located in countries where it applies. The UK is on that list.

So the 6.5% transaction fee is 6.5% plus VAT, and the same goes for the rest.

Etsy’s treatment splits cleanly in two:

• No VAT ID on your account: applicable VAT charges appear in your payment account balance, and Etsy sends a monthly invoice on the 1st listing the VAT-eligible fees and what you were charged.
• VAT ID added to your account: Etsy won’t charge you VAT on seller fees at all. You still get an invoice on the 1st, stating that you weren’t charged.

That is the two-minute fix. If you are VAT-registered and haven’t given Etsy your number, you are paying VAT on every fee unnecessarily — and you’ll have access to invoices only from the month you add it, so there’s no benefit to delaying.

Part two: whether you need to register

The threshold is £90,000, and it’s rolling

You must register when your total taxable turnover for the last 12 months goes over £90,000. It rose from £85,000 on 1 April 2024 and has not changed since.

The word doing the work is rolling. This is not a tax-year figure you check each April — it’s the previous 12 months, checked on an ongoing basis. A seller whose Q4 is enormous can cross the threshold in January on the strength of the previous December.

There are two separate tests, with different deadlines

This is the part most summaries get wrong, so it’s worth being exact.

• Looking back. If your taxable turnover for the last 12 months went over £90,000, you must register within 30 days of the end of the month you went over. Your effective date is the first day of the second month after you crossed it. Gov.uk’s own example: you pass the threshold on 15 July, you register by 30 August, and you are registered from 1 September.
• Looking forward. If you realise your taxable turnover is going to exceed £90,000 in the next 30 days alone, you must register by the end of that 30-day period — and your effective date is the date you realised, not the date the turnover actually crossed.

The forward test catches people with a sudden viral product or a very large wholesale order. The effective date being “when you realised” is unusual and worth noting.

What counts toward the threshold

Taxable turnover is the total value of everything you sell that isn’t VAT exempt or out of scope — standard-rated, reduced-rated and zero-rated goods all count. Three points that catch makers out:

• It’s gross, not net. The threshold is on what you sell, not what reaches your bank after Etsy’s cut. A shop turning over £92,000 has crossed it even though several thousand went to fees.
• It applies to you, not to the shop. A sole trader adds together all their business activities — Etsy, markets, commissions, a second shop — rather than treating each separately.
• Gifts and personal use count. Business goods used for personal reasons, and goods given as gifts or part-exchanged, are included in the test.

Deregistration

If taxable turnover falls below £88,000 you can ask HMRC to cancel your registration. Note that it’s optional — you ask, it doesn’t happen automatically — and there are exceptions where it doesn’t apply.

The Flat Rate Scheme, briefly

You can join if you expect VAT-taxable turnover of £150,000 or less excluding VAT in the next 12 months, and you must leave once turnover exceeds £230,000. You pay HMRC a fixed percentage of your turnover and keep the difference between that and what you charged customers.

The catch matters specifically for makers: under the scheme you generally cannot reclaim VAT on your purchases, except certain capital assets over £2,000. If a large share of your costs is materials bought with VAT on them, that exclusion can outweigh the simplicity. You also can’t join if you’ve left the scheme in the last 12 months, or if you’ve joined a margin or capital goods VAT scheme.

Gov.uk’s own page says to talk to an accountant about whether it’s right for you, which is the correct advice and worth taking.

What registering actually changes for your pricing

This is the part that has nothing to do with paperwork and everything to do with whether your shop still works. Once registered, you charge VAT on your sales — so either your prices rise by the VAT rate, or your margin absorbs it.

On Etsy, where your listing sits beside unregistered sellers charging the same headline price, you’re usually absorbing at least part of it. That is a real, permanent change to the margin on every product, and it deserves to be modelled before it happens rather than discovered afterwards.

The offsetting benefit is that you can reclaim input VAT on materials, equipment and — once you’ve added your VAT ID — you stop paying VAT on Etsy’s fees entirely. For a materials-heavy maker, that side is not small.

If you’re approaching £90,000, work out now what your margins look like on the other side. The pricing method shows how to work a price backwards, and MakerMargin computes what each product currently earns after Etsy’s fees and your materials, which is the starting figure you’d be adjusting.

UK figures from gov.uk, read 14 September 2026: the £90,000 registration threshold and both registration tests from “Register for VAT” and “VAT thresholds”; the £88,000 deregistration threshold from “Cancel your VAT registration”; the definition of taxable turnover from “Calculate your taxable turnover”; Flat Rate Scheme eligibility, the £230,000 exit figure and the input-VAT restriction from the VAT Flat Rate Scheme pages. The threshold last changed on 1 April 2024. Note that HMRC’s VAT Notice 700/1 supplement has not been updated with a 2026–27 row — the live guidance pages above are the ones to rely on. Etsy’s treatment of VAT on seller fees, including the effect of adding a VAT ID, is from its Fees & Payments Policy and the help article “How VAT Is Collected on Seller Fees”, read the same day. General information, not tax advice.