As a UK Etsy seller, the money you spend on your creative business can potentially reduce your tax bill. But many sellers miss legitimate deductions because they do not separate materials, stock, fees, postage, software and workspace costs properly.
At Simplr Accounting, we help Etsy sellers claim allowable expenses correctly and reduce tax bills legally. This guide explains the main expense categories you can usually claim and how to keep records that support your tax return.
How Do Tax Deductions Work for Etsy Sellers?
When you are self-employed as an Etsy seller, you pay tax on profit, not revenue. Profit is your sales income minus cost of goods sold and allowable business expenses.
Profit calculation
- Etsy sales: £25,000
- Cost of goods sold: £8,000
- Other expenses: £4,000
- Taxable profit: £13,000
What HMRC taxes
- You report your income
- You deduct allowable costs
- You pay tax on profit, not gross sales
The key is understanding what HMRC considers an allowable expense and keeping proper records throughout the year. For the wider tax rules, read our guide on whether Etsy sellers need to pay tax in the UK.
What Makes an Expense Allowable?
HMRC generally allows expenses that are wholly and exclusively for your business. If a cost has both business and personal use, you should only claim the business-use proportion.
- The expense should relate to making, marketing, selling or delivering your products
- Mixed-use costs should be apportioned fairly
- Large equipment purchases may be claimed through capital allowances
- Personal projects, gifts and everyday living costs are not business expenses
You can read HMRC's general guidance on expenses if you are self-employed.
Raw Materials and Supplies
Materials are often the largest expense category for Etsy sellers. These usually form part of your cost of goods sold where they are used to make products for sale.
Making materials
- Fabrics, textiles, yarn, thread and embroidery supplies
- Wood, plywood, dowels and woodworking materials
- Metals, wire, chains, clasps and jewellery findings
- Beads, stones, gemstones, pearls and decorative components
- Paper, card, clay, ceramics, resin, epoxy, wax and soap-making supplies
- Paint, dyes, ink, transfers and printmaking supplies
Craft tools
- Sewing machines, overlockers, scissors and rotary cutters
- Knitting needles, crochet hooks and stitch markers
- Cricut, Silhouette and other cutting machines
- 3D printers, filament and production accessories
- Jewellery tools, pliers, wire cutters, mandrels and torches
- Woodworking tools, pottery equipment, heat presses, embroidery machines and laminators
Larger equipment can still be claimable. Expensive tools and machines may need to be claimed through capital allowances rather than treated as ordinary materials. GOV.UK has guidance on capital allowances.
Packaging and Shipping
Packaging and shipping are core business costs for product sellers. Claimable costs can include:
- Boxes, padded envelopes, bubble mailers and shipping bags
- Bubble wrap, tissue paper, packing peanuts and protective materials
- Custom boxes, branded tape, stickers and logo labels
- Thank-you cards, business cards and inserts included in orders
- Address labels, product labels, tape, markers and weighing scales
- Royal Mail, courier fees, shipping labels and international customs documentation
Etsy Platform Fees
Etsy fees are usually fully deductible because they are costs of selling through the platform. Track them from your Etsy payment account rather than relying only on bank deposits.
- Listing fees
- Transaction fees
- Payment processing fees
- Etsy Ads and Offsite Ads
- Currency conversion fees
- Pattern by Etsy and Etsy Plus subscription fees
For broader tax basics, see our accountant for Etsy sellers page.
Photography and Product Presentation
Good product photography helps your listings sell, so related business costs may be claimable.
- Camera equipment, lenses and tripods
- Softbox lights, ring lights and LED panels
- Photo backdrops, seamless paper and styling props
- Photo editing software such as Lightroom, Photoshop or Canva Pro
- Business-use percentage of a phone camera where used for product photography
Marketing and Advertising
Marketing costs that help promote your Etsy shop or creative business can usually be claimed.
- Social media advertising on Facebook, Instagram, Pinterest, TikTok or Google
- Influencer marketing and paid promotional collaborations
- Sample products sent to influencers or for PR campaigns
- Business cards, flyers, postcards and order inserts
- Email marketing tools such as Mailchimp, ConvertKit or Klaviyo
- Social media scheduling tools such as Buffer, Hootsuite or Later
Website and Online Presence
If you run a website or sell outside Etsy, your online business costs may also be deductible.
- Domain registration and website hosting
- Shopify, WooCommerce or other e-commerce platform fees
- Design tools such as Canva Pro or Adobe Creative Cloud
- Mockup tools such as Placeit or Smartmockups
- Etsy SEO tools such as eRank or Marmalead
- Website plugins, themes and email tools used for business
Home Office and Workspace
If you run your Etsy shop from home, you may be able to claim home working or workspace costs. You can use HMRC's simplified expenses method where eligible, or calculate a reasonable business proportion of actual costs.
GOV.UK explains the flat-rate method in its guide to simplified expenses for working from home.
- Home working flat rate where eligible
- Business proportion of rent, mortgage interest, council tax, utilities and home insurance where appropriate
- Craft tables, storage shelves, chairs and dedicated workspace furniture
- Bins, organisers and shelving for stock and materials
- Additional lighting for your workspace
- Portable heating or cooling used specifically for the craft space
Professional Services
Professional support costs are usually deductible where they relate to your Etsy business.
- Bookkeeping and accountancy fees
- Legal advice and trademark registration
- Business bank account charges
- Product liability and public liability insurance
- Professional memberships, guilds and craft associations
Software and Subscriptions
Software used to design products, manage stock, track finances or list products can usually be claimed.
- Design software such as Adobe Creative Cloud, Affinity Designer or Canva Pro
- Accounting software such as Xero, QuickBooks or FreeAgent
- Inventory tools such as Craftybase or similar stock systems
- Listing tools for Etsy or multi-platform selling
- Design files, fonts and commercial-use graphics subscriptions
- Cloud storage for design files, product photos and business documents
Travel and Transport
Business travel can be claimable where it is genuinely for your Etsy shop. Keep mileage logs and notes explaining the business purpose.
- Trips to the post office or courier drop-off points
- Travel to buy craft supplies or visit wholesalers
- Craft fairs, markets and trade shows
- Business meetings and supplier visits
- Parking fees and public transport for business trips
- Booth rental, market stall fees and craft fair costs
- Accommodation and meals for qualifying overnight business travel
Banking, Finance and Print-on-Demand Costs
Financial and fulfilment costs linked to your shop are usually part of the business.
- Business bank account fees
- PayPal, Stripe and payment processor fees
- Currency conversion fees on international payments
- Interest on business loans, but not capital repayments
- Printful, Printify or other print-on-demand product costs
- Printing fees, sample orders and POD shipping costs
- Monthly fees for print-on-demand platforms
Small Costs That Add Up
Do not ignore small costs just because they are not exciting. They often add up over a full year.
- Printer ink, paper and label sheets
- Pens, markers and stationery
- Cleaning supplies for craft space and equipment
- Gloves, masks, eye protection and safety gear
- Small repairs to business equipment or workspace items
What You Cannot Claim
- Personal clothing, even if handmade
- Personal craft projects
- Gifts for friends and family
- General home improvements unless clearly workspace-specific
- Personal phone or internet costs without a business-use calculation
- Meals while working from home
- Gym memberships or personal entertainment
Calculating Cost of Goods Sold
For handmade and product-based sellers, cost of goods sold is crucial. It tells you the true cost of the products sold during the year.
Formula: opening stock + purchases during the year - closing stock = cost of goods sold.
For example, if you start the year with £2,000 of stock, buy £10,000 of materials, and finish the year with £3,000 of stock, your cost of goods sold is £9,000. You should do a stocktake at your year end and keep evidence of your valuation.
VAT Considerations
If you become VAT-registered, you may be able to reclaim VAT on eligible business purchases. You may also need to charge VAT on certain sales. Etsy sellers can face extra complexity where they sell digital products, export goods, sell vintage items or use multiple platforms.
You can read more about our VAT accounting service, or get advice before your sales approach the VAT threshold.
Record Keeping Tips
HMRC explains how long records must be kept in its guide to business records if you are self-employed.
How Simplr Accounting Can Help
We help Etsy sellers identify allowable expenses, calculate cost of goods sold, claim home workspace costs, track inventory valuations, claim capital allowances and prepare accurate tax returns.
Our fixed monthly fees include ongoing support, so you can ask about expenses as they come up rather than guessing later.
Final Thoughts
Tracking and claiming all your allowable expenses can save you a meaningful amount of tax. The best approach is simple: keep clean records, separate business and personal spending, and be clear about what each cost was for.
If you are unsure about an expense, get in touch. We will help you claim everything you are entitled to while staying compliant.