What to do about tax on online sales

You've sold maybe ten thousand pounds of candles this year, you have a job that already takes tax off before you see it, and you genuinely don't know whether HMRC wants to hear about the candles.

It probably does. If you're selling with the intention of making money, that's trading income, and trading income gets reported separately from whatever your employer handles through PAYE. There is an allowance in the UK below which small amounts of trading income don't need reporting at all, and you should find the current figure from HMRC rather than from any article, including this one. Above it, you report.

The single most important sentence on this page: you're taxed on profit, not on turnover. Ten thousand pounds through your account on £14 candles is not a ten thousand pound tax question. It's a question about what's left after wax, jars, postage, stall fees and everything else, and for most makers the gap between those two numbers is enormous.

Three questions people mash into one

"Tax" for a UK seller is at least three separate obligations with three separate triggers. Treating them as one thing is why the whole subject feels heavier than it is.

Income tax on your profit. Triggered by trading, above the allowance. Reported through self assessment. This is the one that applies to almost everyone reading.

National Insurance. A separate charge with its own rules, its own thresholds and its own classes for self-employed people. It's calculated off the same profit figure but it isn't the same thing as income tax, and the thresholds don't line up with the income tax ones.

VAT. Triggered by turnover, not profit, and at a level most small sellers are nowhere near. It's a completely different regime, it changes how you price and invoice, and it arrives with an obligation to charge your customers something you weren't charging them last month. VAT and invoicing anxiety covers the shape of it and the reason it frightens people more than it should.

Each of those has current figures attached. All of those figures get changed, sometimes at short notice, and an article that quotes them ages into a liability. Get them from HMRC's own pages, write down the date you looked, and re-check them once a year.

Profit means after costs, and the costs are bigger than you think

Most sellers who overpay tax do it by forgetting expenses, not by missing a clever scheme. The test in the UK is broadly whether a cost was incurred wholly and exclusively for the business, and the practical version of that is: would you have spent this if you didn't sell things?

Things small sellers routinely forget:

• Packaging. Boxes, mailers, tissue, tape, void fill, thank-you cards, the labels for the labels.
• Postage you didn't charge for. If shipping cost you £3.29 and you charged £2.95, the difference is a cost.
• Payment fees. Card reader fees, gateway percentages, the fixed pence per transaction. Read the total off your statements rather than estimating from a rate.
• Subscriptions. The shop plan, the design tool, the scheduling app, the domain, the cloud storage full of product photos.
• Market and fair fees, including the ones paid in cash to a man with a clipboard.
• Travel to buy stock or work a market. Most countries allow a per-mile or per-kilometre business travel figure; find your country's current rate and keep a log of the journeys, because a rate without a log is worth nothing.
• A part of your phone and your internet, apportioned honestly. If a quarter of your phone use is the shop, a quarter of the bill is a cost. Write down how you arrived at the fraction.
• Equipment, which is often treated differently from consumables because it lasts more than a year. How you claim for a £180 wax melter versus a £24 pack of wicks is a real distinction with real rules, and it's one worth asking about specifically.
• Samples and giveaways, including the free candle you posted to someone with an audience.

None of that is aggressive. It's just recording what the business actually cost to run, which is exactly what a set of books is for. If yours are patchy, keeping records when you hate paperwork is the ten-minutes-a-week version that makes this section usable rather than theoretical.

Sophie, candles, Bristol

Sophie has a day job in a school and makes soy candles in her kitchen in Bishopston. Six scents, one size, £14 each. She sells through a shop link she posts on Instagram and at a Saturday market fourteen times a year.

Over twelve months she sold 740 candles. That's £10,360 through the door, and it's the number she quoted to her sister, and it's the number that made her nervous.

Here's what her ledger actually said.

	For the year
Sales, 740 candles at £14	£10,360
Wax, wicks, jars, lids, fragrance, labels (£6.14 a candle)	−£4,544
Postage paid out, less postage collected from buyers	−£176
Market stall fees, 14 Saturdays	−£532
Card reader fees at markets, from her statements	−£112
Public liability insurance for the markets	−£86
Domain	−£12
Wax melter and scales	−£204
Left over	£4,694

So the tax question was never about £10,360. It was about £4,694, and even that isn't the end of it, because the equipment and the travel are treated in ways she needed to check rather than assume.

Two more things about that table are worth sitting with.

The postage line is nearly £200 and she'd never once thought about it as a cost, because it never felt like money leaving. She charged £2.95 for shipping because that's what it cost when she started, and the real cost had drifted to £3.29 without her noticing. Roughly 34p, 520 times.

And the £4,694 wasn't sitting in her account when she came to file. About £1,100 of it was wax and jars in her spare room, bought in November for a Christmas run that hadn't happened yet. Stock is money you've already spent and haven't sold, and it sits in a completely different place in the accounts from where it sits in your head.

The tax bill that hurts isn't the one you can't afford. It's the one for money you already spent on stock in November.

Set the money aside on the day it arrives

The single habit that separates people who find tax stressful from people who find it boring: move a fixed fraction of every payment into a second account, on the day it lands, before you've made any decisions about it.

Not monthly. Monthly means you have to decide, and deciding while looking at a bank balance is how the money gets spent. On arrival, automatically, is the version that works.

What fraction? Work it out from your own numbers rather than a rule of thumb off the internet. If you filed last year, take the total you owed and divide it by the total you took in; that's your effective rate on your actual circumstances, and it's the honest starting point. If you've never filed, deliberately set aside more than you think you need. Being wrong in the direction of a refund is a good day. Being wrong the other way, in a month where you also need to buy stock, is how people end up on a payment plan.

The second account is not optional here, and it doesn't need to be a business account. Separating business and personal money covers why one account is the most expensive habit in small retail, and how to fix it this afternoon without registering anything.

Which year does a sale belong to

Two boring questions that decide which return a sale lands on, and both are worth ten minutes.

When does the UK tax year start and end? It isn't January to December, and if you're used to a calendar year you will get this wrong. Look it up once, write the dates in the front of your ledger, and stop guessing.

When does a sale count? There are two accepted approaches. One counts money when it moves; the other counts a sale when you make it and a cost when you incur it, regardless of when the cash follows. They give different answers for a December order paid in January, and the rules about which you're allowed or required to use have changed in recent years. That's a question for HMRC's guidance or an accountant, not for a blog, and it's the kind of thing where a one-hour conversation is cheap.

If most of your money arrives as bank transfers you confirm by hand, the "when did it move" question is less obvious than it sounds. A transfer sent on the 4th and cleared on the 6th, at the end of a tax year, is exactly the sort of edge that makes people wish they'd picked a basis and written it down.

The platforms are no longer quiet

The situation people are still mentally operating in, where a side income online was effectively invisible, has ended.

Online marketplaces and platforms in the UK and across the EU now pass seller data to tax authorities. Which platforms, from when, what data, and what triggers a report varies, and it's worth checking rather than assuming either way. The practical effect is straightforward: a letter asking about income the tax office already has a record of is a much worse conversation than a return you filed yourself.

This doesn't apply to money that never touched a marketplace. Bank transfers straight to your account, cash at a market, a WhatsApp order settled in person: nobody reports those for you. That isn't a loophole and treating it as one is the expensive kind of mistake, because the obligation to declare is on you regardless of who else knows.

If you're still unsure whether what you're doing counts as trading at all, that's the prior question and it has a proper test. When a side hustle becomes a business works through the indicators, and selling your own old possessions genuinely is different from buying things to resell.

What this article can't tell you, and why

There isn't a single number in this piece for an allowance, a threshold, a rate, a band or a deadline, and that's deliberate.

Those figures change. They change in budgets, they change at short notice, and they're the exact numbers people plan around. An article that states them confidently will be wrong within a year or two and will keep ranking anyway, and someone will make a real decision about real money based on a sentence written by someone who never checked.

What you can safely take from here is the shape. Profit not turnover. Three separate obligations. Costs bigger than you think. Money set aside on arrival. Then spend twenty minutes on HMRC's own site filling in the actual numbers, and write the date you looked next to each one.

If your affairs are more complicated than one person selling one product line, an hour with an accountant is the cheapest hour in this whole business. Not to do your books. To answer four specific questions you write down in advance.

Where Sailo sits, and where it doesn't

Sailo is not a tax tool and won't behave like one. It issues an invoice for every order with a sequential number, the date, your details and the buyer's, and it'll print your tax ID and a tax line on that invoice if you've set one up in settings. That's genuinely useful for records, and it's a document rather than a calculation.

What it doesn't do: work out what you owe, know your country's rules, apply a rate for you, or account for a single thing you spent money on. It sees what came in. It has no idea what went out.

The limitation worth planning around is the analytics window. The free plan keeps 7 days, Pro keeps a year, Business keeps three. Most tax authorities expect you to be able to account for a longer period than that, so export your orders on a schedule and keep the file yourself. CSV export is on Pro at $19 a month and above, which means on the free plan you're copying by hand, and copying by hand is a job people don't do.

What to do this week

Open HMRC's site and find four things: the allowance for small trading income, the dates of the tax year, the deadline for filing, and the registration process for self assessment. Write them in a note with today's date. That's a twenty-minute job and it removes about eighty percent of the anxiety.

Then work out one number: your turnover for the last twelve months, and your costs for the last twelve months, from your actual bank statements. Not an estimate. If the gap between them surprises you, it will surprise you a lot less than a bill would.

And open the second account today. Every payment that arrives from tomorrow gets a fraction moved across before you look at it, and by the time the deadline you just wrote down comes round, the money is already there.

If you haven't sorted out whether you need to register anything at all, do you need to register your business is the piece that sits above this one.