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Selling on Etsy UK: A Complete Guide for Small Businesses (+ Tax Implications)

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Etsy is an online marketplace allowing creators to sell their art and craft products to customers worldwide. Whilst it’s similar in function to eBay or Amazon, Etsy is unique due to its focus on crafts and handmade goods. 

If you’re a creator, you may be able to build a profitable business as an Etsy seller. Whether you’ve never considered selling your goods before or just looking at the best way to make money from your hobby, understanding how to set up an Etsy shop is the first step for your fledgling business. 

Etsy is an international platform, and many of the internet’s most popular selling guides focus on US-based businesses. We thought we’d create a guide specifically for UK residents, which looks at how to sell on Etsy UK whilst also accounting for tax considerations and the business implications that are most relevant to us Brits. 

Business considerations: payments, charges and tax

Before you start selling on Etsy, you need to brush up on some core UK business concepts quickly. Whilst some people casually sell on Etsy, anyone selling at scale should treat it as a business (or an extended sales channel for an existing business). That means: 

  • Business structure: you’ll need to decide if you want to be treated as a sole trader or whether you want to set up a limited business or partnership. If you’re new to Etsy selling and it’s your first business, being a sole trader may be the most suitable choice. There are tax implications for each ‘type’ of business, so make sure you know how they’ll affect you. 
  • Banking: using Etsy payments, you can collect payments directly into a UK bank account – but you need to keep records for each payment for tax reporting purposes, so make sure you’re confident in your bank. 
  • Taxes: as with all forms of earning, you’ll need to pay tax on Etsy sales once you meet a certain earnings threshold. This is different for everyone, so you’ll need to calculate your own tax obligations depending on whether you’re a sole trader or a limited company. Click here to learn more. 

How to set up your Etsy shop in the UK

Assess the competition

You’re almost ready! But to help you get started as effectively as possible, you should spend some time researching other Etsy shops that offer similar products or anything related to your niche. 

Gauging your competition helps you identify a few important things about what competitors are doing. Pay attention to: 

  • Their shop’s identity: look at the page’s name, photography, logos, other visuals and any written descriptions
  • Dispatch and shipping times: how long does it take a competitor to make a product and get it into the hands of UK customers?
  • Product range: what type of products do they sell? What colour and style variations are on offer? 
  • Categorisation: how are the items categorised in the shop? Is it easy to find specific items? 
  • Prices: how are products priced? Does the seller offer many discounts or sale items? 

Having insight into each of these things will help you make sure that your own shop launches with the level of polish your competition has established and can compete in your market.

Get your shop up and running

Once you’ve got an idea of what other people are up to, you can begin to create your own shop to stand out from the crowd. To get started, follow these steps:

1. Create an Etsy account by clicking ‘sign in’ on the top right of Etsy’s UK homepage and then selecting ‘Register’ in the top right corner of the pop-up. 

2. Visit Etsy’s selling page and begin creating your shop. The site will ask you a question about your experience and the purpose for creating the shop, then you’ll be able to choose some options for additional support if required. You can also hit ‘skip this question’ if you’d rather not answer. 

3. Set up your Shop preferences, including the language, shop country and currency. Make sure you set your shop country to the UK and your currency to GBP. 

4. Create a name for your shop. Choose something that reflects what you’re selling and has a touch of personality in it. Bear the following in mind:

  • Your name must be between 4 - 20 characters and have no spaces or special characters. 
  • The name can’t use any trademarked terms or copy another Etsy user. 
  • Put personality into the name - Etsy shoppers want to buy from makers and not from faceless brands.
  • The name you choose will become a part of the URL (e.g., Claire Crafts would become clairecrafts.etsy.com), so consider how the name looks in that format

5. You’ll need to create product listings before launching to ensure you’ve got high-quality photographs and evocative descriptions. Once you’ve done this, follow Etsy’s prompts to set up payments and launch your shop. 

Set up Etsy payments

For a business to succeed, it needs a way to receive payments. In the UK, the easiest way to do this via Etsy is to set up Etsy payments, which allows you to link a UK bank account with Etsy so the platform can automatically deposit sales income into the account. 

If you’re new to running a business and don’t want to open a business bank account yet, don’t worry – you can change the linked bank account you choose in future, but the new account must be in the same country and currency as the old one. 

Alternatively, you can allow customers to pay directly through PayPal – but these purchases aren’t protected by Etsy’s Purchase Protection programme. Overall, Etsy payments seem the better choice, thanks to its streamlined purchase journey and a more transparent fee structure. 

Speaking of fees…

Understanding Etsy’s commission rates and fees

Whether we like it or not, most third-party sales platforms charge a fee for using them and Etsy is no different. When you’re getting started, and every penny counts, it’s important you understand these fees.

Listing fee £0.16
Transaction fee 6.5% of the full transaction value (includes shipping price)
Payment processing fee 4% + £0.20 (for Etsy payments)
Regulatory operating fee 0.32% for UK sellers
Offsite advertising fees 15/12% per item sold*

*Items sold via offsite advertising will be charged at a higher rate if an Etsy shop’s total sales are less than $10,000. A discount rate is applied if sales exceed $12,000 USD. Since UK sellers don’t use USD, Etsy calculates revenue totals based on the conversion rate applied to each sale when it was processed.

Is Etsy Plus worth it?

Etsy also offers an upgraded seller package named Etsy Plus, which costs $10 USD per month (converted to £7.84 at the time of writing). This package grants you 15 listing credits and $5 USD of Etsy Ad credit, alongside some additional customisation features. 

That means you’ll get around £2.40 in listing credits and 5 USD (£3.92) from the subscription, for a total of £6.32. 

If you compare that to the cost of an Etsy Plus subscription, it may not seem worth it – but the membership also means you get more customisation options for your shop and the ability for your customers to sign up to restock notifications. 

Considering the listing and ad credits as well as the customisation options, Etsy Plus is worth it for those who can afford the added fee. 

Optimising your shop: SEO and cross-promotion

SEO, or Search Engine Optimisation, is the practice of optimising a website to improve its visibility in search engines. Whilst it most commonly refers to Google, Etsy is its own form of search engine and lots of the techniques will help your shop rank higher than your competitors. Here are some tips to follow:

  • Use Etsy’s search bar to start searching for products similar to your items and allow autocomplete to make suggestions. This will help you discover the keywords customers type in when shopping. 
  • Implement these keywords in your product names and descriptions. 
  • Use all of the available product tags in each product listing to help customers find what they are looking for. Use the findings from your earlier competitor research to see which tags are popular. 
  • Use Etsy’s analytics function to see which keywords customers use to find your shop. Make sure those keywords are used across all relevant products. 

SEO is a long-term strategy, but it’s built on a key idea: find the things people want and then make sure your listing is as relevant to them as possible. Don’t try and call your wedding ring something unusual to stand out – a listing with a niche term like ‘Male matrimonial band’ will attract far fewer customers than ‘Men’s gold wedding ring’ .

Standing out: branding makes a big difference

Etsy is a competitive marketplace and success depends on winning customers over. Your products might speak for themselves, but your shop page is what will truly convince a customer to complete their purchase. Here are some simple tips for better branding: 

  • Create an attractive banner image and logo that reflect your brand. Make sure these visual assets display correctly on desktop and mobile devices. 
  • Invest in high-quality photography for your products so customers can get a realistic view of what you’re selling. 
  • Curate the font and colours of your Etsy shop to match your product range. 
  • Don’t forget about your packaging and printed materials – any logos, colour choices and fonts should be replicated across these too. 

Reputation is key: customer service and feedback

To sell effectively, you need customers to trust your business. People won’t buy from a seller with poor reviews – so it’s absolutely vital that you are proactive about customer service from the very first day of setting up your shop.

  • Like with our SEO tips above, it’s important that you give customers what they’re looking for. A shop that accurately describes its products and displays high-quality photography is more relevant to a user’s decision-making journey and is, therefore, more trustworthy. 
  • Promise only what you can deliver. Don’t say you can do next-day shipping if you can’t guarantee it. It’s better to set expectations before a sale than have to communicate a delay with a disappointed customer. 
  • Always be polite and proactive when communicating with customers. If you see the same question cropping up often, create an FAQ on your shop page so you can quickly address common queries. 
  • If you’re going to be away from your shop, set up an auto-reply to let customers know the timeframe for a reply. 
  • Follow up after customer purchases to make sure items have been received and customers are satisfied. 

The higher your review rating, the more likely you are to attract more customers – so make sure you prioritise customer service and you’ll be well on your way to successful selling. 

Navigating Etsy UK tax implications

The UK has strict tax laws which govern virtually all forms of income – Etsy included. Depending on your situation, different rules apply. Pick the statement that best applies to you to see which tax concerns are relevant. 

“I’m employed and do Etsy as a side hustle.” 

  • If you’re employed and trade on Etsy as a side business, you’ll only need to pay tax if your total income from sales exceeds the £1,000 trading allowance. 
  • Once your earnings exceed that allowance, you’ll need to complete a self-assessment as you’ll be viewed as both employed and self-employed. 
  • You’ll need to calculate your total earnings, which includes employment and self-employment. If you exceed the £12,570 personal allowance, you’ll pay additional tax on your self-employment income. 
  • You’ll also have to pay Class 2 National Insurance Contributions (see our guide to Class 2 NICS here.

“Etsy is my main source of income.”

  • If Etsy is your main income source, you’ll be viewed as a sole trader and must pay tax accordingly. 
  • Sole traders pay tax on earnings above the £12,570 personal allowance, though which rates apply will depend on your total earnings. See our guide here. 
  • You’ll also have to make both Class 2 and Class 4 National Insurance Contributions.
  • If earnings exceed £85,000, you’ll have to register for and charge VAT. 

“I run a business, and Etsy is one of our sales channels.” 

  • Limited businesses must pay corporation tax on total earnings, so you’ll include your Etsy earnings in each year’s accounts (unless Etsy is a side business for a specific person in the business, in which case they must include earnings in their own self-assessment.) 
  • You can claim for certain expenses such as Etsy selling fees, shipping materials, production costs etc. 
  • If your business generates more than £85,000 from all sources of income, you’ll need to register for VAT and ensure you’re charging the extra 20% on your Etsy products. 

The pros and cons of selling on Etsy UK

So we’ve discussed everything you need to know to get started on Etsy – but what is it the final verdict? Is it a worthwhile channel for businesses looking to diversify, or is it better for individuals looking to turn their hobby into a business? 

Pros:

  • Etsy is a simple and straightforward platform to get started with
  • You’ll gain access to a vast marketplace full of customers who are interested in products like yours
  • Etsy occupies a niche as a creator-led space, so customers are more relevant than those you may find on less specific selling platforms like Amazon or eBay. 
  • You can sell to international customers easily through Etsy, though currency conversions can impact fees and tax obligations. 

Cons: 

  • Etsy’s fee structure is fairly steep and can cut into your income.
  • You can’t build much of a brand on Etsy as you can only control some parts of your shop’s appearance.
  • There’s a lot of competition on the platform and copycats are a frequent problem.
  • Selling on Etsy in the UK is subject to the same tax rules as other types of business, so people looking to do it as a hobby in addition to employment may be surprised by the added tax burden. 

Hopefully, this guide has helped you understand whether Etsy is the right channel for your business. Whether you’re brand new and want to start with Etsy, or you’re an existing business branching out into new channels, make sure you keep tight control over your cashflow and finances with Crunch. 

Our accountancy software makes it easy for online sellers to track their revenue, profit and tax obligations – all with customisable costs based on your needs. The best thing? Getting started with Crunch is totally free!

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Updated on
August 24, 2023

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