UK VAT & Etsy 2026: What Every Seller Must Know

Etsy is the go-to marketplace for handmade, vintage, and craft supplies, with over 90 million active buyers worldwide. It’s beloved by independent makers and small creative businesses — but its VAT rules are different from running your own store, and the differences catch a lot of sellers off guard. The most important thing to understand upfront: Etsy handles VAT for you, but that doesn’t mean VAT stops being your problem.

How Etsy Handles UK VAT

Etsy is a deemed seller (also called a marketplace facilitator) for UK VAT purposes. This means:

Etsy collects UK VAT from buyers on your behalf for orders shipped to UK addresses
Etsy remits that VAT to HMRC — you never receive the VAT amount and don’t need to pay it separately
You do not charge VAT yourself on Etsy sales to UK buyers, even once you’re VAT-registered

From a day-to-day perspective, Etsy takes care of it. Your Etsy prices are what buyers pay — Etsy handles the VAT component within that price.

The Threshold Gotcha Most Sellers Miss

Here’s where many Etsy sellers go wrong: your Etsy sales still count toward the £90,000 VAT registration threshold, even though Etsy collects the VAT.

The threshold is based on your total taxable turnover — the value of sales you make, not the VAT you collect. So if you made £85,000 on Etsy and £10,000 on your own website, you’ve crossed £90,000 and must register for VAT. Once registered:

Etsy still handles VAT on your Etsy sales (no change there)
You now need to handle VAT yourself on your non-Etsy sales (your website, Instagram sales, craft fairs, etc.)

If Etsy is your only channel: Registration is still legally required, but in practice you won’t need to charge VAT — Etsy does it for you. You’ll still need to file VAT returns and report your Etsy sales.

What to Configure in Etsy

Even though Etsy handles VAT collection, you should still enter your VAT number once you’re registered:

Go to Shop Manager → Finances → Legal and tax information
Enter your VAT registration number
Save

This allows Etsy to include your VAT number on receipts they issue to buyers — which matters for any B2B buyers on Etsy who need to reclaim the VAT.

Selling on Multiple Channels

If you sell on Etsy and another platform (your own website, WooCommerce, Shopify, social media):

Etsy sales: Etsy handles VAT — no action needed at checkout
Non-Etsy sales: You must charge VAT, issue VAT receipts, and account for it in your returns
All sales count toward your threshold: Keep a running total across all channels

See the dedicated guide for your other platform to set up VAT there:

Reporting Etsy Sales on Your VAT Return

When you file your VAT return, Etsy sales go in Box 6 (total value of sales excluding VAT). You don’t include the VAT that Etsy collected in Box 1 (output VAT) — that’s Etsy’s liability, not yours.

Your accounting software may need to be configured to treat Etsy income this way. If you use Xero or QuickBooks with an Etsy integration, check that it’s categorising the sales correctly before your first return.

This is Step 4 of the UK VAT Setup Checklist. Continue to Step 5: set up invoicing →