Starting an Online Business in the UK: 2026/27 Guide

Published: September 2026  |  Tax year: 2026/27  |  Written by Marina Jahan  |  Reviewed by Shamayun Chowdhury

Starting an online business in the UK, choose what you will sell and where you will sell it. Then set up your website’s legal pages and a way to take payment. Register with HMRC once you are genuinely trading and your income passes the £1,000 trading allowance. Online sellers follow the same tax rules as everyone else, but marketplaces now report seller income to HMRC.

Plenty of guides cover general start-up admin: picking a name, choosing a structure, registering. We have covered that in our step-by-step guide to starting a business in the UK. This article covers what is different when your shop is a website or a marketplace listing: the business models, the platforms, what HMRC can now see, and the consumer rules that only apply to selling at a distance.

Choose your online business model

“Online business” covers very different operations. A candle maker on Etsy, a freelance bookkeeper with a website and a creator selling templates face different costs, risks and paperwork. Decide on your model first, because it shapes every later choice, including which platform makes sense.

Physical products you make or buy

You hold stock and post orders yourself. Margins can be healthy, but cash is tied up in stock before you sell anything. Postage, packaging and returns eat into profit faster than most beginners expect.

Dropshipping and print-on-demand

A supplier stores and ships the goods, so you never touch stock. That makes it cheap to start, but margins are thin and you have little control over quality or delivery times. Under UK consumer law the customer’s contract is with you, not your supplier. Late or faulty orders are your problem to resolve.

Digital products

Templates, courses, e-books, presets and printables. There is no stock and no postage, and you can sell the same file many times. The work is front-loaded: creating something good, then getting it in front of buyers. Digital content has its own cancellation rules, covered in the legal checklist below.

Services sold online

Freelance design, writing, tutoring, coaching, bookkeeping, virtual assistance. Start-up costs are the lowest of any model, but income is capped by your hours unless you later productise or hire.

Subscriptions, memberships and content

Paid newsletters, membership communities, subscription boxes, or content that earns from advertising and affiliate links. Recurring revenue is attractive, but it usually takes the longest to build, because you need an audience before it pays.

Marketplace or your own website?

This is the second big decision, and it is really a trade-off between reach and control. A marketplace such as Etsy, eBay, Amazon or Vinted brings buyers who are already searching, so first sales come faster. The price is fees on every sale, strict platform rules, and customers who belong to the marketplace more than to you. Your own shop, built on Shopify, Wix, Squarespace or WooCommerce, gives you your own brand, your customer list and your margins. But nobody arrives until you bring them.

Many sellers do both in sequence. They prove demand on a marketplace, where buyers already are, then open their own site once they have repeat customers and reviews. When you work out prices, add up every fee at your expected order value. On a low-priced item, fixed per-order charges and postage can take a surprisingly large share of the sale.

Payments, banking and records

Taking payment

Marketplaces process payments for you and pay out the balance after their fees. On your own site you will connect a payment provider such as Stripe, PayPal or Square, or use the one built into your shop platform. Compare the fees at your typical order value, not the headline percentage. On small orders the fixed charge per transaction often matters more than the percentage.

Keeping business money separate

Sole traders are not legally required to have a separate business account, but running everything through a personal account makes bookkeeping painful and mistakes more likely. A limited company’s money belongs to the company, so it needs its own account. Our comparison of business bank accounts for sole traders covers the options.

Records you need to keep

Keep a record of every sale and every business cost, including platform fees, postage, packaging and materials. Download your platform statements regularly, as older data can become harder to retrieve. Sole traders must keep records for at least five years after the 31 January Self Assessment deadline for that tax year. As your income grows, Making Tax Digital for Income Tax will require digital records and quarterly updates. This applies to sole traders with qualifying income over £50,000 from April 2026, over £30,000 from April 2027 and over £20,000 from April 2028.

Selling to customers abroad

Selling beyond the UK opens up more buyers but adds customs paperwork, and possibly VAT or import charges in the customer’s country. Many marketplaces collect and pay overseas taxes on your behalf, but on your own site that responsibility may fall to you. Check the rules for each market before you switch on international shipping.

Worked example: an Etsy seller’s first year

Illustrative scenario. The sellers and figures are invented to show how the choice works and do not describe real people.

Two people start selling online alongside their day jobs in 2026/27. Both are clearly trading and both take more than £1,000, so both must register for Self Assessment. Each can deduct either their actual business costs or the flat £1,000 trading allowance, but not both. The right choice is different for each of them.

What the numbers show. The candle maker’s real costs are well above £1,000, so claiming them cuts taxable profit by £1,650 compared with the allowance. The template seller’s costs are only £400, so the flat allowance saves them £600 of taxable profit. The rule of thumb: if your genuine costs are above £1,000, claim them; if not, the allowance is usually better. Either way, keep your records. You cannot tell which option wins without knowing your real costs.

Launch in 30 days: step by step

1. Days 1–7: test demand cheaply. Look at what already sells in your niche, price a few products after all fees and postage, and check you would still make a worthwhile margin.
2. Days 8–12: choose your model and platform. For most beginners, a marketplace is the fastest way to test demand. Set up your shop name and profile.
3. Days 13–18: create your listings. Clear photos, honest descriptions, delivery times you can actually meet, and prices that include every unavoidable fee.
4. Days 19–23: put the legal basics in place. Work through the checklist above: business details, cancellation terms, privacy notice and the ICO fee check.
5. Days 24–26: set up money and records. A separate account and a simple spreadsheet or bookkeeping app from your very first sale.
6. Days 27–30: launch and learn. Tell friends and existing networks, ask your first buyers for honest reviews, and note which products and listings get attention.
7. Ongoing: watch the £1,000 line. Once your trading income passes it, register for Self Assessment by 5 October after the end of that tax year.

If you are selling from your spare room or kitchen table, our guide to starting a business from home covers mortgage, tenancy, insurance and business rates questions that apply to home-based sellers.

Common mistakes new online sellers make

• Pricing before counting the fees. Listing fees, sale commission, payment processing and postage can take a large share of a low-priced sale. Work out your price from what you need to keep, not from what competitors charge.
• Saying “no returns”. Distance-selling rules give most consumers a 14-day cancellation right whatever your policy says. A “no returns” notice is misleading and cannot be enforced.
• Assuming small sellers are invisible. With platform reporting in place, HMRC may already hold figures for your sales. Declare trading income properly.
• Mixing personal and business money. It turns year-end records into guesswork and makes it easy to miss costs you could have claimed.
• Copying another shop’s terms. Borrowed terms may contradict your actual process or the law. Write short terms that fit what you sell.
• Relying on one platform. A policy change or account suspension can stop your income overnight. Once you are established, start building a customer list you control.

FAQs

Do I need to register a business to sell online?

Not necessarily. You do not need to form a company to sell online. If you are trading and your gross income passes £1,000 in a tax year, you must register with HMRC for Self Assessment as a sole trader. Setting up a limited company is optional, and is usually worth considering once profits grow.

Will Etsy or eBay report me to HMRC?

If you sell goods and make 30 or more sales, or receive around €2,000 (about £1,700) or more in a calendar year, the platform will usually report your details and income to HMRC. It must also send you a copy. Being reported does not by itself mean you owe tax.

How much can I earn online before paying tax?

If your gross trading income is £1,000 or less in the tax year, the trading allowance usually means there is nothing to report. Above that you must register and declare the income. Whether tax is actually due depends on your profit and your other income, such as wages using up your Personal Allowance.

Do I need a licence to sell online in the UK?

Most online sellers need no specific licence. Some products are regulated, however: food, cosmetics, toys, electrical goods, alcohol and anything age-restricted all carry their own safety, labelling or licensing rules. Check the requirements for your product category before listing.

Is dropshipping legal in the UK?

Yes, dropshipping is legal. But the customer’s contract is with you, so you are responsible for delays, faulty items, cancellation rights and product safety, even though a supplier ships the goods. Choose suppliers carefully and set delivery times you can rely on.

Do I need a website to start an online business?

No. Many sellers start on a marketplace or social media shop and add a website later. A marketplace brings ready-made traffic, while your own site gives you more control and lower per-sale fees once you have customers of your own.

Hobby or business? When online selling becomes taxable

Selling becomes a business in HMRC’s eyes when you are trading: buying or making things to sell at a profit, regularly and in an organised way. Clearing out your own unwanted belongings is not trading, however much you sell. If your trading income is £1,000 or less in a tax year, the trading allowance means you usually do not need to tell HMRC at all.

There is no single test. HMRC looks at the overall picture using factors known as the “badges of trade”. In everyday terms, it asks questions like these:

• Did you buy or make it in order to sell it? Selling a jacket you wore for three winters is different from buying ten jackets to resell.
• How often do you sell? Frequent, repeated sales point towards trading. One-off sales point away from it.
• Do you improve items before selling? Upcycling, repairing or repackaging suggests a trade.
• Do you sell like a shop would? Branded listings, stock photography, set postage options and a shop name all look like a business.
• How long did you own it? Items bought and quickly resold carry a stronger profit motive than long-owned possessions.

Note that the £1,000 figure is gross income, meaning what customers paid before any costs. A seller who takes £1,400 but spends £900 on materials is over the allowance, even though their profit is only £500. Once over it, you choose between deducting your actual expenses or a flat £1,000 instead. The worked example later in this guide shows how that choice plays out.

Digital platform reporting: what HMRC can see

Since 1 January 2024, UK online marketplaces have had to collect and verify details of their sellers and report their income to HMRC once a year. This is not a new tax. It is a data-sharing rule, based on international model rules drawn up by the OECD, so that HMRC can compare what platforms report with what sellers declare.

Who gets reported

For goods, a platform leaves a seller out of its report only if they made fewer than 30 sales and received less than €2,000 (roughly £1,700) in the calendar year. Reach either figure and you are likely to be included. Sellers of services, and people renting out accommodation or vehicles through platforms, are generally reported whatever their volume. Full details are in HMRC’s reporting rules for digital platforms.

What is shared

Reports include your name, address, date of birth, tax reference or National Insurance number, the total you received through the platform, the number of sales and the fees the platform charged. Reports for each calendar year go to HMRC by 31 January the following year. Platforms must also give you a copy of what they sent. Keep it, because it is the figure HMRC will be holding when it looks at your tax return.

In practice, platform reports mean income a seller has left off a tax return is now far easier for HMRC to spot. If you have been trading without declaring it, it is better to correct it yourself before HMRC gets in touch.

The online seller’s legal checklist

Selling at a distance gives consumers extra protections that do not apply in a physical shop. Most of the checklist below comes from the Consumer Contracts Regulations 2013 and UK data protection law. It applies whether you sell through a marketplace or your own site. Marketplaces handle some of it for you, but not all.

1. Give customers their 14-day cancellation right

Consumers who buy online can usually cancel within 14 days of receiving goods, without giving a reason. For services, the 14 days run from the day the contract is made. You must refund within 14 days of getting the goods back (or proof they were sent), including the standard delivery charge. If you fail to tell customers about this right before they buy, the cancellation period can stretch by up to 12 months.

There are exceptions, including made-to-order or personalised items, perishable goods, and sealed hygiene products once unsealed. For digital downloads, the right ends once the download starts, but only if the customer expressly agreed to immediate access and acknowledged losing the right. Build that tick-box into your checkout.

2. Show the right information before checkout

Before a customer pays, they need to see who you are, a geographic address, a way to contact you by email, the total price including all delivery charges, and how cancellations and returns work. Limited companies must also display their registered name, company number and registered office on the website, plus a VAT number once registered.

3. Price honestly and keep reviews genuine

Under the Digital Markets, Competition and Consumers Act 2024, from April 2025, the headline price must include any fee the customer cannot avoid paying. Fake reviews are banned outright, including buying them, writing your own, or hiding negative ones in a misleading way. For a new shop tempted to kick-start its reputation, that last point matters.

4. Handle customer data properly

You will need a privacy notice explaining what personal data you collect and why, and consent before setting most non-essential cookies. You may also need to pay the ICO’s data protection fee. For a small business this is £52 a year (£47 by direct debit) in 2026. However, organisations that process data only for their own accounts, staff administration and marketing their own goods can be exempt. Use the ICO’s data protection fee guidance to check before paying.

5. Write your own terms and returns policy

Copying another shop’s terms is tempting and risky. They may be wrong for your products, out of date, or promise things you cannot deliver. Keep your terms short, specific to what you sell, and consistent with the rights above. A returns policy cannot take away a consumer’s statutory rights, only add to them.