Shopify and Etsy sellers: your payout is not your turnover

The money Shopify or Etsy pays into your bank is not your turnover. It is what your customers paid, less the platform's fees and any refunds. VAT, the £90,000 VAT registration threshold and the £1,000 trading allowance all work from what customers paid. Book the payout as your sales and each of those numbers comes out too low.

Three rules that start from what the customer paid

• VAT on each sale. HMRC's VAT guide says that where you are paid in money, VAT is based on the amount paid, and "the amount paid includes tax". That is the amount your customer paid. The platform's fee is a separate charge to you for its own service, so it does not come off before the VAT is worked out.

• The VAT registration threshold. Registration is triggered by taxable turnover, which gov.uk defines as "the total value of everything you sell that is not VAT exempt or 'out of scope'". The fees are paid out of that total. They do not reduce it.

• The trading allowance. For a sole trader, the £1,000 allowance is measured on gross income, before any expenses are taken off.

Even the data HMRC receives will not give you the gross figure. Where a selling platform reports you to HMRC, the report shows your earnings less any fees, commission or taxes the platform deducted.

What it looks like on a VAT return

Illustration, not a real client. A customer pays £60 for an order, including VAT. The platform keeps £3 in fees and £57 reaches you.

The VAT on that sale is worked out on the £60. Divide by 1.2 and the price without VAT is £50, so the VAT is £10. Start from the payout instead and you get £9.50.

Fifty pence looks like nothing. Where the fee itself carried VAT at 20 per cent, the cash you pay HMRC can even come out the same, because the VAT on the fee was never reclaimed separately. That is luck, not accuracy. Every return understates your sales and the VAT on them, and the fees are missing from your costs. They belong on the purchases side of the return, with an invoice to support any VAT reclaimed on them. Our guide to why a Shopify payout understates your VAT turnover sets out where each figure goes, box by box.

The threshold you can cross without noticing

Illustration, not a real client. Dev makes candles in Croydon and sells them through his own Shopify store and on Etsy. He is not VAT registered. In the 12 months to 30 September 2026, customers paid him £94,000. Fees came to £6,500, so his payouts total £87,500.

Going by his bank, he is £2,500 under the line. Going by the rules, his taxable turnover is £94,000, which is £4,000 over it.

If September was the month he first went over, he has until 30 October 2026 to register, and he owes VAT on his sales from 1 November whether or not he charges it. If he went over earlier, he is already late.

Reconcile every payout, once a month

None of this needs special software. It needs the payout broken back into its parts:

1. Download each platform's payout or finance report. The bank statement shows only the net figure.

2. Record sales at the full price customers paid.

3. Record fees as a cost, and refunds and chargebacks separately, in the period they happen.

4. Check that sales, less fees, refunds and anything the platform is holding back, equals what reached the bank. If it does not, something is missing.

5. Put each sale in the period it was made. A payout that lands on 2 October can carry orders from September.

The method, with a worked settlement, is in our guide to reconciling marketplace payouts back to real sales.

What to do this month

Pull 12 months of gross sales from each platform's own reports, not from your bank, and add them together. Compare the total with £90,000.

If you are already registered, check last quarter's return was built from sales, not payouts. If you are a sole trader filing for 2025/26, the online deadline is 31 January 2027, so check the sales figure on that return the same way before you submit it.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for ecommerce sellers. He grew up in West London and worked in finance roles in investment banking, wealth management and private equity, starting at Barclays, before leaving in 2020 to build the firm. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by GB The Green Brand on Unsplash.