Running an e-commerce business in the UK in 2026/27 means operating in a tax environment that has changed fundamentally over the past three years. HMRC now receives direct income data from every major digital platform on which UK sellers operate. VAT on cross-border sales has been overhauled since Brexit and continues to evolve as UK-EU trade frameworks settle. The distinction between trading income and capital receipts matters more than ever as HMRC's data-matching capability improves. And the compliance standards required for a limited company e-commerce business — Corporation Tax, VAT, Making Tax Digital, and now platform income reporting — are more demanding than at any point in recent memory.

At CoreAcc Accountants, we work with e-commerce businesses across Hertfordshire and North London, from independent sellers on Etsy and Amazon to established multi-channel retailers with annual turnovers of several million pounds. This guide explains the key tax planning opportunities and compliance requirements for 2026/27.

Disclaimer: This article is for general information only and does not constitute professional tax or legal advice. Tax rules for e-commerce businesses are complex and depend on specific facts. Always seek specific advice for your individual circumstances.

1. DAC7 Platform Reporting: HMRC Has Your Data

From 1 January 2024, all digital platforms operating in the UK have been required under the OECD's Digital Platform Reporting rules (implemented in the UK as the DAC7 regime) to report the annual income of every UK seller directly to HMRC. HMRC received the first full year of this data in January 2025 and has since been cross-referencing it against 2024/25 Self Assessment returns using its automated Connect system.

The platforms now reporting include Amazon, eBay, Etsy, Vinted, Airbnb, Booking.com, Not On The High Street, Fiverr, Upwork, Uber, Just Eat, Deliveroo, and dozens of others. The reporting threshold is 30 transactions or approximately £1,700 in gross proceeds per calendar year. Above this threshold, HMRC has your income data.

This matters for two reasons. First, any seller whose platform-reported income does not reconcile with their declared income on a Self Assessment or Corporation Tax return will receive a nudge letter or compliance check. Second, sellers who have not registered for Self Assessment at all — because they did not realise their income was taxable — are now visible to HMRC in a way they were not before 2024.

2. Trading vs Capital: The Most Important Distinction for Sellers

Not all sales on digital platforms create an Income Tax liability. The key distinction is between trading activity and the disposal of capital assets.

Selling items you already owned for personal use — unwanted clothing, household goods, books, old electronics — is generally a disposal of capital assets rather than trading. Capital Gains Tax may theoretically apply to individual items worth more than £6,000, but for casual second-hand sales of personal items this is rarely relevant in practice. No Income Tax or NI applies.

Trading arises where you are in business as a seller — buying goods to resell at a profit, making goods to sell, or providing services commercially. Trading income is subject to Income Tax and National Insurance in the same way as any other self-employment income.

HMRC determines whether an activity is trading based on the so-called "badges of trade": the motive for acquisition (was it to make a profit?), the frequency and number of transactions, whether the seller modifies goods to make them more saleable, the way the goods are financed, and whether the activity is carried on in an organised, commercial way. Someone who buys 50 pairs of trainers and resells them individually on eBay is trading. Someone who sells their own unwanted clothing twice a year is not.

3. The Trading Allowance and When It Applies

Every individual has a trading allowance of £1,000 per tax year. Where total gross income from all trading activities — combined across all platforms — is £1,000 or less, it is completely exempt from Income Tax and does not need to be declared.

Above £1,000, there are two options. The taxpayer can claim the £1,000 trading allowance and pay tax only on the excess above it. Or they can deduct their actual allowable business expenses and pay tax on the net profit. The expense deduction method produces a lower tax liability where actual expenses exceed £1,000 — which is the case for most genuine trading businesses.

The trading allowance cannot be combined with an expense deduction for the same income — it is one or the other. Where a seller has low expenses and their profit is only modestly above the £1,000 level, the trading allowance simplifies the calculation significantly.

Worked Example 1: A Part-Time Etsy Seller

Maria has a full-time PAYE job. She also makes handmade ceramics and sells them on Etsy. In 2026/27, her gross Etsy income is £8,400. Her allowable expenses — clay, glazes, kiln electricity, packaging, and Etsy fees — total £3,200. Her trading profit is £5,200.

If Maria claims the £1,000 trading allowance, she pays tax on £7,400 (gross income minus allowance). At 20% basic rate, her Income Tax on the trading income is £1,480, plus Class 2 NI of approximately £179 and Class 4 NI at 6% on the profit above £12,570 (noting that her employment income uses most of the lower profits limit). In practice, because Maria's employment income already uses her personal allowance, the full £5,200 trading profit is taxable at 40% — £2,080 Income Tax — and the trading allowance would not change this.

If Maria instead deducts actual expenses of £3,200, her taxable trading profit is £5,200. At 40%, her Income Tax is £2,080. This is the same result in this case, since the 40% rate applies to both the expense method and the allowance method for a higher rate taxpayer with this level of trading income. But Maria also keeps better records of her business costs, which is useful if HMRC enquires.

The trading allowance is most valuable for basic rate taxpayers with low expenses whose gross income is only modestly above £1,000. For higher rate taxpayers and those with significant costs, actual expense deduction is almost always the better approach.

4. Corporation Tax for E-Commerce Limited Companies

For e-commerce businesses operated through a limited company, all trading profits are subject to Corporation Tax — 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief applying between the two thresholds.

Stock valuation

Stock must be valued in the accounts using an appropriate method — most commonly first-in first-out (FIFO) or weighted average cost. The method chosen must reflect the actual cost of the stock and must be applied consistently from year to year.

Where stock has become obsolete, unsaleable, damaged, or where market prices have fallen below cost, the stock should be written down to its net realisable value — the amount it is expected to sell for, net of any costs to sell. A writedown of slow-moving or obsolete stock reduces taxable profit and reflects the commercial reality that not all stock purchased will sell at its original intended price.

Capital allowances on equipment and infrastructure

Shelving, racking, packaging machinery, weighing scales, barcode scanners, label printers, computers, and other equipment used in the e-commerce operation all qualify for the Annual Investment Allowance, which provides 100% first-year relief on qualifying expenditure up to £1 million per year. For a growing business investing in fulfilment infrastructure, these capital allowances can reduce the first year's taxable profit by the full value of the investment.

Platform fees, fulfilment costs, and marketing

All platform fees (Amazon seller fees, eBay listing fees, Etsy transaction fees), payment processing costs (Stripe, PayPal, Shopify Payments), fulfilment costs (Amazon FBA fees, third-party logistics), returns handling costs, and business marketing expenditure are fully deductible business expenses.

Worked Example 2: Corporation Tax Planning for an Amazon Seller

Brighton Botanicals Ltd sells botanical skincare products on Amazon UK. In 2026/27, its trading profit before any planning is £68,000. The company makes the following decisions:

It invests £12,000 in a new packaging machine (100% AIA): CT saving of £3,000 at 25%.The sole director makes a £15,000 employer pension contribution: CT saving of £3,750 at 25%.This reduces taxable profit to £41,000 (below the £50,000 threshold), bringing the CT rate down to 19%.CT at 19% on £41,000 = £7,790.

Without any planning, CT at 25% on £68,000 would have been approximately £14,088. The planning reduces the CT bill to £7,790 — a saving of £6,298, with £12,000 of new equipment in the business and £15,000 in the director's pension.

5. VAT for E-Commerce Businesses

The UK registration threshold

The VAT registration threshold is £90,000 of taxable UK turnover on a rolling 12-month basis. For an e-commerce seller, turnover means gross receipts from UK sales of standard-rated goods. Platform fees and postage costs are not deducted for threshold purposes — it is gross receipts that count.

A business that is not yet registered but whose rolling 12-month turnover is approaching £90,000 must monitor the threshold carefully each month and register within 30 days of crossing it. Failure to register on time exposes the business to a backdated VAT liability on sales made while unregistered, plus penalties and interest.

Voluntary VAT registration

Where turnover is below £90,000 and the business makes significant purchases from VAT-registered UK suppliers, voluntary VAT registration may be worthwhile. Registration allows the business to reclaim VAT on its costs — packaging, warehousing, professional fees, and equipment — which reduces the effective cost of those purchases by 20%. The downside is the obligation to charge VAT on sales, which increases the price to consumers unless the seller absorbs the VAT within existing prices.

For a B2B e-commerce business selling to VAT-registered customers, voluntary registration is often clearly worthwhile — the customers reclaim the VAT, so it has no net cost to them, and the seller reclaims input VAT on their own costs. For a B2C seller to consumers, the price increase of 20% may reduce competitiveness, making the voluntary registration less attractive.

VAT on overseas sales: EU customers

Post-Brexit, VAT on sales to EU consumers (B2C) operates under the EU's Import One Stop Shop (IOSS) scheme for consignments valued at €150 (approximately £127) or below. UK businesses registered for IOSS in one EU member state can declare and pay VAT on all EU consumer sales through a single quarterly return in that state.

For consignments above €150 sent to EU consumers, import VAT is assessed by the EU customs authority at the point of import. The commercial terms of the sale (DDP or DAP) determine whether the seller or buyer is responsible for this import VAT.

Sales to non-EU countries are zero-rated for UK VAT purposes — the goods are exported and no UK VAT is charged. The seller must retain evidence of export.

Worked Example 3: VAT Registration at the Threshold

Clearview Homeware Ltd sells kitchen and bath accessories through its own website and on Amazon. In November 2026, the director notices that rolling 12-month turnover has reached £87,000. At the current growth rate of approximately £5,000 per month, the company will cross the £90,000 threshold in January 2027.

The director contacts CoreAcc Accountants in November 2026. We confirm that the company must register for VAT within 30 days of the end of the month in which it crosses the threshold — so by the end of February 2027 if it crosses in January 2027.

We also model the decision to register voluntarily in November 2026 rather than waiting. Clearview spends approximately £12,000 per month on stock from UK VAT-registered suppliers. Registering voluntarily in November 2026 allows the company to immediately reclaim VAT on these purchases — recovering approximately £2,000 per month in input VAT (20% of £12,000) — while the impact on consumer prices is managed by pricing new product listings to include VAT rather than repricing all existing listings overnight.

The voluntary early registration saves approximately £4,000 in input VAT over the two months before mandatory registration would have applied, at the cost of some administrative setup time.

Frequently Asked Questions

Does Vinted, eBay or Etsy report my income to HMRC?

Yes. All digital platforms operating in the UK that facilitate the sale of goods, services, or property have been required to report seller income to HMRC under DAC7 rules since January 2024. The reporting threshold is 30 transactions or approximately £1,700 in gross proceeds per calendar year. If you are above this threshold on any platform, HMRC has received data on your income from that platform. Where your declared income does not reconcile with the platform data, HMRC will generate a compliance check or nudge letter.

What is the difference between selling personal items and trading?

Selling personal items you owned for personal use — unwanted clothing, second-hand furniture, old books, electronics you no longer need — is generally a disposal of capital assets rather than trading. It does not create an Income Tax liability in most circumstances. Trading arises when you acquire goods with the intention of reselling them at a profit, or when you provide services commercially. If you are regularly buying and reselling goods, making goods to sell, or providing services through a platform on a commercial basis, this is trading income subject to Income Tax and NI.

I am approaching the £90,000 VAT threshold. Should I register early?

This depends on whether your customers are businesses or consumers. B2B sellers whose customers can reclaim VAT generally benefit from registering voluntarily — they can reclaim input VAT on their own costs without effectively increasing the price to their customers. B2C sellers to consumers face a more complex decision, since charging VAT increases the price to end customers. For businesses approaching the threshold, a modelling exercise comparing the input VAT saving against the competitive price impact is the correct starting point. CoreAcc Accountants can carry out this analysis.

Can I run my e-commerce business through a limited company?

Yes. Operating through a limited company gives you Corporation Tax at 19% to 25% rather than Income Tax at 20% to 45% on trading profits, the ability to retain profits in the company and time extraction to optimise personal tax, and limited liability protection. For consistent annual trading profits above approximately £35,000 to £40,000, the tax saving from a limited company structure typically exceeds the additional compliance costs of running a company. Below this level, the sole trader structure is usually simpler and more efficient overall.

What stock writedown rules apply to e-commerce businesses?

Stock must be valued at the lower of cost and net realisable value. Where items have become unsaleable, obsolete, or are expected to sell for less than their cost, the stock can be written down to the expected net selling price. The writedown reduces taxable profit and represents a legitimate deduction. Good evidence of the writedown — a physical count, photographs of damaged goods, records of price reductions applied — supports the claim if HMRC reviews it.

How do I account for Amazon FBA fees in my accounts?

Amazon FBA fees — fulfilment fees, monthly storage fees, referral fees, and other charges deducted from your seller account before remittance — are all deductible business expenses. They should be recorded on the gross basis: recognise the full gross selling price as turnover and the Amazon fees separately as a cost of sale. Do not simply record the net remittance from Amazon as turnover, as this understates both revenue and costs and gives an inaccurate picture of the business's scale. Most modern accounting software can connect directly to Amazon Seller Central to import gross sales and fee data automatically.

Do I pay VAT on digital services sold to EU consumers?

For digital services sold to EU consumers, UK businesses must account for VAT in the EU country where the consumer is located. The EU's non-union One Stop Shop (non-union OSS) scheme allows UK businesses to register in a single EU member state and declare all EU digital services VAT through a single quarterly return. This avoids the need to register in every EU country where you have customers. The rules are complex for businesses with both goods and digital service sales, and specialist VAT advice is recommended where EU digital services income is material.

What CoreAcc Accountants Can Help You With

E-commerce tax compliance requires active management across multiple taxes simultaneously — Income Tax or Corporation Tax on trading profits, VAT on domestic and international sales, PAYE if you have employees, and now platform income reporting through DAC7. CoreAcc Accountants provides comprehensive tax services for e-commerce and retail businesses of all sizes.

We can advise on business structure — whether sole trader, limited company, or a combination — and model the tax position under each option. We manage VAT registration, quarterly returns, and cross-border VAT compliance including EU IOSS and non-union OSS. We prepare annual accounts and Corporation Tax returns optimised to use all available reliefs. We review stock valuation methodology and capital allowances claims. And where HMRC has issued a nudge letter or compliance check relating to platform income, we manage the response on your behalf.

Get in Touch

Whether you are a sole trader selling on Etsy and Vinted or an established multi-channel retailer with a complex VAT and CT position, CoreAcc Accountants is here to help.

CoreAcc Accountants is an ACCA accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published in September 2026 and reflects legislation and HMRC guidance in force for the 2026/27 tax year. It does not constitute professional tax or legal advice. Always seek specific advice for your individual circumstances.

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