The £1,000 trading allowance for Etsy and eBay sellers: take it or claim your costs, worked on two shops

A seller who has a good year on Etsy or eBay often asks the same thing in the autumn: "I spent money on boxes, fees and postage, so do I claim that, or use the £1,000 allowance everyone talks about?" The two cannot be combined. You pick one, and the right pick depends on a single comparison.

What GOV.UK says

I read the GOV.UK page on tax-free allowances for property and trading income on 16 October 2026. The trading allowance is "a tax exemption of up to £1,000 a year" for individuals with trading income. The page describes two ways it works:

• Full relief. If your gross trading income is £1,000 or less, the page says you generally do not need to tell HMRC, but you must keep records. That is gross income, meaning sales before any costs come off.
• Partial relief. If income is above £1,000 you can use the allowance instead of deducting expenses. In the page's words, you can deduct "up to £1,000, but not more than the amount of your income."

The page also says that if your expenses are more than your income it may be better to claim expenses instead. You cannot use the allowance in a tax year if you have trading income from a company you or a connected person owns or controls, a partnership where you are a partner, or your employer or your spouse's or civil partner's employer.

Two shops, worked

The sums below are ours. They use the rule above and nothing else.

Shop A deducts £1,000 under partial relief, because £1,000 is more than its £600 of costs. Shop B deducts £1,000 under partial relief, which is less than its £1,400 of costs, so it should claim the costs.

The break-even

The allowance is worth a flat £1,000 off profit, as long as your sales are at least £1,000. So the decision is just this:

1. Add up what you actually spent on the business in the tax year.
2. If it is under £1,000, the allowance gives the bigger deduction.
3. If it is over £1,000, claiming costs gives the bigger deduction.
4. If your costs are more than your sales, claiming costs is the only route that records a loss, which is what the page's remark about expenses exceeding income points to.

To see money rather than profit, we assumed a 20% income tax rate for illustration. That rate is our assumption, not a figure from the page, and your own rate may differ. At 20%, the £400 gap in each shop is worth £80 of tax. For a part-time seller that is real, but it is not worth losing receipts over.

Records still matter

Even with the allowance, you keep a record of sales. If you claim costs you also need the evidence behind each one: fee statements from the marketplace, postage receipts, supplier invoices. A simple monthly sheet with sales, platform fees and postage is enough to make the break-even test above take five minutes.

What to read next

If you sell through a marketplace, the platform may now report your sales to HMRC, which makes it harder to treat income as invisible: see the platform reporting rules for Etsy, eBay and Amazon sellers. Your fee costs are easier to total with the Etsy and Shopify fee calculator, and the point at which sales force VAT registration is covered in the VAT threshold guide for online sellers.

What I did not read

I did not read the HMRC pages on how to register for Self Assessment or its deadlines, the rules for sole traders who file under other schemes, how a loss is carried forward, or what counts as trading rather than selling personal belongings. The GOV.UK page gave no worked example, so the two shops above are our own illustration.

Overlyft builds AI staff who join your shop team and keep the monthly sheet of sales, platform fees and postage, run the allowance-or-costs comparison each month from the receipts, and show the owner the result to confirm.

This is general information, not legal or financial advice. Check GOV.UK and talk to an accountant about your own position.