What expenses can online sellers claim?

Common allowable expenses

The guiding rule is wholly and exclusively. A cost is allowable if it is incurred wholly and exclusively for your selling business, and where something is used partly privately you claim only the business share.

For most online sellers the core allowable costs are these.

• Cost of goods sold, meaning what you paid for the stock you actually sold, plus the cost of materials if you make your own products.
• Postage and packaging, including stamps, courier charges, boxes, mailing bags, tape and labels.
• Platform and seller fees, such as Amazon, eBay and Etsy selling fees, listing fees and final value fees.
• Payment processor fees, such as PayPal and Stripe charges deducted from each sale.
• Software and subscriptions used for the business, such as accounting software, listing tools and a Shopify plan.
• A home office share of household costs where you run the business from home.
• Mileage to the post office or courier drop off, at 45p per mile for the first 10,000 miles and 25p after that.
• Stock storage, including the cost of a storage unit or fulfilment charges.

Because fees are deducted before the money reaches you, it is easy to record only the net amount and miss the deduction. Sound bookkeeping that captures gross sales and every fee separately is the single biggest help here.

Expenses people often miss

Online sellers frequently understate their costs because so much happens automatically inside each platform.

Fees buried in payouts. When eBay or Etsy pays you, the figure that lands in your bank is already net of selling fees and often postage labels bought through the platform. The full selling fee and the cost of any platform postage are both allowable, so always work from the detailed payout statement, not the bank deposit.

The home office share. If you photograph, list, pack and admin from home, a proportion of your home running costs is allowable. You can use the simplified flat rate based on hours worked from home each month, or apportion actual costs such as heat, light and broadband by a reasonable measure.

Small recurring tools. Listing software, a label printer subscription, stock label rolls, photography props and a business mobile share all add up and are easy to forget.

Returns and refunds. Where you refund a customer, that reduces your taxable income, and any return postage you cover is a cost.

Bank and account fees. Charges on a business account or a separate selling account used for the shop are allowable.

Risky or commonly challenged expenses

A few costs are commonly claimed but are either not allowable or only partly so.

Everyday clothing. Ordinary clothes are not allowable even if you only wear them for work or for filming listings. Genuine protective wear or branded uniform is different.

Stock you have not sold yet. You claim the cost of goods when they are sold, not when you buy them. Unsold stock is carried as closing stock and only reduces profit once it sells, so buying a large quantity at year end does not create an immediate deduction.

The private share of mixed use items. A phone, laptop or car used for both the business and personal life can only be claimed to the extent of business use, so keep a sensible record of the split.

Meals and entertaining. The cost of entertaining customers or contacts is never allowable.

As you scale, keep an eye on the VAT registration threshold of £90,000 of taxable turnover. Once your rolling 12 month turnover approaches it, you need to plan ahead. Our guide on when to register for VAT walks through the triggers and timing.

Records to keep

The sellers who claim everything they are entitled to are the ones with tidy records. Keep the following.

• Every platform payout statement showing gross sales and the fees deducted.
• Purchase invoices for stock and materials, so you can work out cost of goods sold.
• Postage and packaging receipts, including platform bought labels.
• Payment processor reports from PayPal, Stripe and similar.
• A mileage log for post office and supplier trips.
• A note of your home office basis, whether flat rate hours or apportioned actual costs.

If you are self employed, keep these records for at least 5 years after the 31 January deadline for the relevant tax year. They feed directly into your Self Assessment return.

A worked example

This example also shows why turnover and profit are very different. Sam turned over £30,000 but the figure that matters for income tax is the £7,758 profit. Turnover is what matters for the VAT threshold.

Common mistakes

The most frequent errors among online sellers are these.

• Recording net payouts as income. This hides the platform and processor fees you are entitled to claim. Always start from gross sales.
• Claiming all stock purchases as an immediate cost. Only the cost of goods actually sold reduces this year's profit.
• Ignoring the home office. A reasonable share of home running costs is allowable and often overlooked.
• Mixing personal and business spending. A separate account for the shop makes the split clean and defensible.
• Forgetting the VAT threshold. Watching your rolling 12 month turnover against £90,000 avoids a nasty surprise.

What you should do

Set up a simple system that records gross sales and every fee, keep all your payout statements, and decide on a consistent home office basis. Separate your business banking from your personal money so the figures are easy to pull together, and review your rolling turnover regularly as you grow.

If your shop is scaling fast, you are selling across several platforms, or you are approaching the VAT threshold, it pays to get specialist help. See how we support sellers on our accountants for online sellers page, or start your quote for a fixed fee.

Frequently asked questions