eBay and Etsy fee structures: what counts as an allowable expense

Selling on eBay and Etsy comes with a maze of platform fees, and understanding which of those fees you can actually deduct against your tax bill is one of the most common questions online sellers ask their accountant. The short answer is that almost all platform fees are allowable business expenses, but the details around VAT treatment, record keeping and what counts as “gross” versus “net” income trip up even experienced sellers.

Understanding the eBay and Etsy Fee Structure

Both platforms charge sellers in layers rather than a single flat fee, and knowing each layer matters for accurate bookkeeping.

eBay’s core charges include an insertion fee (typically free for the first 250 listings a month, then around £0.35 per listing), a final value fee of roughly 10 to 15 percent of the total sale price depending on category, and a per order fee of £0.30 to £0.40. Sellers who use Promoted Listings pay an additional variable ad fee, and cross border sales attract an international fee of around 1.65 percent.

Etsy’s fee stack is different. Sellers pay a £0.15 to £0.20 listing fee per item that renews every four months, a 6.5 percent transaction fee on the total sale including shipping, and a payment processing fee of around 4 percent plus £0.20 per transaction. Etsy also charges a regulatory operating fee of 0.25 percent on UK sales, a 2.5 percent currency conversion fee where relevant, and mandatory offsite ads fees of 12 to 15 percent for shops that cross certain sales thresholds and generate a sale through an ad click.

What Counts as an Allowable Expense

HMRC applies a single overriding test to every business cost, including platform fees. The expense must be incurred wholly and exclusively for the purposes of the trade. If a cost has any personal element, only the clearly identifiable business portion can be claimed, and if it cannot be separated at all the whole cost is usually disallowed.

Applying this rule to eBay and Etsy selling, the following are firmly allowable because they exist solely to generate trading income.

• eBay insertion fees, final value fees and per order fees, since these are charged automatically as a direct cost of making each sale.
• Etsy listing fees, transaction fees and payment processing fees, which are unavoidable costs of operating the shopzipsa
• Promoted Listings and offsite advertising fees on both platforms, treated as marketing expenditure.
• Currency conversion fees and regulatory operating fees charged by Etsy, since these arise directly from trading activity.
• Cost of stock or materials purchased for resale or for making items
• Postage, packaging and courier cost
• A reasonable proportion of home working costs, using either actual costs or HMRC’s simplified flat rate
• Mileage for sourcing stock, using HMRC’s approved rate of 45p per mile for the first 10,000 miles and 25p thereafter.
• Storage costs, packaging materials, equipment such as scales, printers and photography.
• Accountancy and professional fees, along with business insurance

One area sellers frequently get wrong is reporting only what actually lands in their bank account. HMRC expects turnover to be recorded as the gross sale price before any platform fee is deducted, with the fee then claimed separately as an expense. Reporting only the net deposit understates turnover and can distort figures used for the VAT registration threshold and Making Tax Digital thresholds.

The Trading Allowance and When You Need to Register

Anyone whose gross trading income from eBay or Etsy stays below £1,000 in a tax year does not need to report it to HMRC at all, thanks to the trading allowance. Once gross sales pass that figure, registration for Self Assessment becomes necessary and expenses, including all platform fees, can then be deducted from turnover to calculate taxable profit.

It is worth noting the distinction between someone clearing out personal possessions, which is not trading and generally not taxable unless a single item sells for more than £6,000 and triggers Capital Gains Tax, and someone buying or making goods with the intention of reselling them, which is trading from the first sale. Since January 2024, both eBay and Etsy have been required to report seller data to HMRC where a seller exceeds around 30 transactions or roughly £1,700 in proceeds during the year, though this report itself does not create a tax liability if the activity is not trading.

VAT Treatment of Platform Fees

VAT adds a further layer of complexity that many sellers overlook until it affects their margins directly.

If you are not VAT registered, both eBay and Etsy will typically add 20 percent UK VAT to their own seller fees, and because you cannot reclaim input VAT as an unregistered business, this becomes an additional real cost baked into your expenses. Once you register for VAT and submit your VAT number to the platform, this changes. Etsy and eBay then stop charging VAT directly on their fees and instead apply the reverse charge mechanism. Under reverse charge, you self account for the VAT that would have been due on the fee, declaring both an output VAT charge and an equivalent input VAT reclaim on the same VAT return, which typically nets to no additional cost while keeping your return technically compliant.

This detail matters because unregistered sellers effectively pay more for the same fee than VAT registered sellers do, once the input VAT reclaim is factored in. It is a strong argument for reviewing VAT registration timing carefully rather than waiting until the mandatory £90,000 threshold is reached.

Separately, once turnover crosses the VAT registration threshold, sellers must also start charging VAT on their own sales to UK customers where applicable, adding output VAT obligations on top of managing input VAT on fees.

Common Mistakes Sellers Make

Several recurring errors show up when reviewing eBay and Etsy sellers’ books.

• Recording only the net amount paid out by the platform instead of gross sales and fees separately, which distorts turnover figures used for tax thresholds.
• Failing to claim VAT charged on fees as an expense when not VAT registered, effectively giving away a legitimate cost.
• Missing the reverse charge entries entirely after becoming VAT registered, leading to an incomplete or inaccurate VAT return.
• Not keeping monthly VAT invoices that both platforms issue, which are needed as evidence for any HMRC enquiry.
• Claiming home costs or mixed use equipment at 100 percent business use without applying a fair apportionment, risking the whole claim being challenged under the wholly and exclusively rule.
• Overlooking postage that customers pay for separately through eBay’s simple delivery, which does not count as part of a seller’s reportable turnover.

How UK Ecommerce Accountants Can Help

Selling on eBay and Etsy comes with fee structures and VAT rules that change frequently, and getting the accounting wrong can either cost you legitimate tax relief or trigger an HMRC enquiry. Here is how our team supports sellers through this exact scenario.

• We reconcile gross sales against every layer of eBay and Etsy fees, so your turnover and expense figures are accurate rather than based on net deposits alone
• We review your VAT registration status and timing, helping you decide whether early registration reduces the VAT cost currently being absorbed on unregistered seller fees
• We set up your bookkeeping to correctly apply reverse charge VAT on platform fees once you are registered, avoiding under or over declared VAT returns
• We identify every allowable expense specific to online selling, including postage, packaging, mileage, storage, equipment and home working costs, applying HMRC’s wholly and exclusively test correctly
• We monitor the trading allowance and Self Assessment thresholds for you, so you know exactly when registration becomes mandatory
• We prepare for Making Tax Digital for Income Tax obligations ahead of the April 2026 rollout for sellers above £50,000 gross trading sales
• We keep digital records of monthly platform VAT invoices and fee statements, ready for any HMRC review
• We offer fixed monthly fees with a dedicated accountant who understands eBay and Etsy specifically, rather than treating your business as a generic retail client

Frequently Asked Questions