Sole Trader Tax for UK Artisan Makers: Self Assessment, Allowances, and Records

When your craft business becomes a tax obligation

Most makers start selling informally — a few items at a craft fair, some Etsy orders. At some point, the income becomes regular and HMRC's rules start applying. The threshold question is not a number; it is whether you are trading with a view to making a profit on an ongoing basis. If the answer is yes, you have a sole trader business and you need to register with HMRC and declare the income.

The good news: the administrative overhead for a small sole trader business is manageable. Self Assessment, once set up, takes a few hours per year if you've kept decent records. The bad news: penalties for late registration and late filing are real, and many makers discover the rules only when HMRC contacts them.

This guide covers what UK artisan makers need to know: when to register, how Self Assessment works, what you can legitimately claim, and what records to keep.

When do you need to register as a sole trader?

You must register as self-employed with HMRC if your self-employment income exceeds £1,000 per tax year (the UK trading allowance). This is gross income — turnover — before expenses. If you earn more than £1,000 from your handmade business in a tax year, you are required to register and file a Self Assessment return.

Register via HMRC's online registration service. You must register by 5 October following the end of the tax year in which you first exceeded the threshold. Tax years run 6 April to 5 April.

Note: the £1,000 trading allowance also means you can earn up to £1,000 from self-employment in a tax year without paying income tax on it — you still need to register, but you can claim the full £1,000 as a deduction against taxable profit. If your income is below £1,000, you don't need to register (unless you have other self-employment income or want to pay Class 2 National Insurance voluntarily for benefit entitlements).

How Self Assessment works

Once registered, HMRC will send you a notice to file a Self Assessment return each year, covering the tax year just ended (6 April to 5 April). The key dates:

31 October — paper return deadline
31 January — online return deadline (following the end of the tax year)
31 January — payment deadline for tax owed

If you file and pay by 31 January, no penalty. If you miss the filing deadline, HMRC charges a £100 late filing penalty immediately, with additional penalties for extended delays.

For most makers, online filing via the HMRC Self Assessment portal is straightforward. You enter your income and allowable expenses; HMRC calculates the tax owed.

What income to declare

Declare all income from your craft business: direct sales, Etsy/marketplace sales, craft fair sales, wholesale orders, commissions. If you sell goods, declare the sale price. If you're selling digital products, declare those too.

Etsy, Not On The High Street, Amazon Handmade, and similar platforms report seller income to HMRC under the UK's Digital Platforms reporting rules (UK implementation of OECD Model Rules). HMRC receives data on seller income from these platforms. Do not assume online marketplace income is invisible to HMRC — it is not.

Payment received outside formal channels (bank transfer, cash at markets) must also be declared. The same taxable income rule applies; there is no "cash is fine" exception.

What you can claim as business expenses

As a sole trader, you can deduct allowable business expenses from your income before calculating tax. This is where most makers leave money on the table — they don't claim everything they're entitled to.

Allowable expenses include costs that are wholly and exclusively for the business. For artisan makers:

Materials and supplies:

Raw materials (yarn, wax, fragrance, fabric, clay, ingredients)
Packaging materials (boxes, tissue, labels, bags)
Tools and equipment used in production

Capital items (equipment):

Equipment (standing mixer, heat press, kiln, printing equipment) can be claimed under the Annual Investment Allowance (AIA) — up to £1 million of qualifying expenditure per year, deducted in full in the year of purchase. Most makers' equipment costs are well within this limit.

Marketplace fees:

Etsy listing and transaction fees, Shopify subscription, marketplace fees — all deductible

Postage and fulfilment:

Postage costs, packaging, courier fees

Business premises:

If you use a dedicated space in your home exclusively for business, a proportion of home costs (rent, utilities, mortgage interest on the business-use fraction) may be deductible. For mixed-use rooms, HMRC's simplified expenses scheme provides a flat-rate calculation — £10/month for 25–50 hours/month business use at home; £18/month for 51–100 hours; £26/month for 101+ hours.

Bank and financial:

Business bank account fees, payment processing fees (Stripe, PayPal etc.)

Professional fees:

Accountant fees, legal fees for business purposes

Marketing and website:

Domain registration, website hosting, advertising costs, product photography

What you cannot claim:

Personal expenses with a business element (a computer you also use for personal browsing — only the business-use proportion is deductible)
Food or clothing unless it is a uniform or safety equipment required specifically for the business
Commuting costs between home and a fixed place of work (but not client/supplier travel)

HMRC's detailed guidance on expenses if you're self-employed covers the full list with worked examples.

National Insurance

As a sole trader, you pay National Insurance contributions (NICs) on your profits:

Class 2 NICs: from April 2024, Class 2 NICs are folded into the Self Assessment return and only paid if your profits are above the Small Profits Threshold (£6,725 in 2024/25 — verify the current threshold on gov.uk). Below this threshold you can choose to pay voluntarily to protect benefit entitlements.
Class 4 NICs: 6% on profits between £12,570 and £50,270 (2024/25 rates); 2% above £50,270.

Both are calculated automatically when you file your Self Assessment return.

What records to keep

HMRC requires self-employed businesses to keep records for 5 years after the 31 January filing deadline for the relevant tax year. For a 2024/25 return (deadline January 2026), keep records until January 2031.

Records to keep:

Sales records — by transaction (date, amount, channel)
Purchase invoices and receipts for all business expenses
Bank statements (separate business bank account makes this much easier)
Mileage log if claiming business travel
Evidence of business-use proportion for home costs or dual-use items

For food producers: your batch records and allergen records overlap with business records — keeping production logs that show what you made, what went in, and what it cost serves both food law traceability and tax record requirements. The batch tracking guide for small UK food producers covers the production-side records; the financial summary flows from that.

The practical timeline

Action	When
Register as self-employed with HMRC	Within the tax year you first earn >£1,000, by 5 October following year-end
Set up a business bank account	Before you start trading regularly
Keep receipts and sales records	Every transaction — from day one
File Self Assessment return	By 31 January (online) for the tax year just ended
Pay tax owed	By 31 January
Review expenses claims	Annually before filing — ensure you've claimed everything

Selling on Etsy UK and tax

Etsy sales are taxable income. UK makers who sell on Etsy need to track:

Gross sales (before Etsy fees)
Etsy fees charged (deductible as business expense)
Net received (what lands in your bank)

The taxable figure is gross sales; fees are deductible against income. Do not only track what arrives in your bank account — Etsy's fees are taken before transfer, but you declare the gross and claim the fees.

Etsy sends annual statement data from your seller account — use this alongside your bank statements to reconcile figures for the tax year.

This guide is general information about UK sole trader tax for artisan makers, not financial or legal advice. Tax rules and rates change each tax year — verify current thresholds and rates on gov.uk or with a qualified accountant before filing.