Nowadays, it's easier than ever for HMRC to see how you make money online.
Whether you're selling on eBay, Amazon, Etsy, Vinted, Shopify, TikTok Shop, or your own website, your income doesn't go unnoticed. And as your side project or small business grows, so do your responsibilities, especially when it comes to tax.
If you're unsure whether Making Tax Digital (MTD) applies to you, don't worry. Our guide will break everything down so you know exactly where you stand and what to do next.
And if you'd rather have someone take care of it for you, contact Unicorn Accountants to speak to one of our experienced eCommerce accountants. We can make things much simpler.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is HMRC's plan to modernise the UK tax system. The goal is to move away from manual record-keeping and the classic annual Self-Assessment tax returns, and towards using digital tools to make tax simpler.
Instead of submitting one tax return each year, MTD requires you to:
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Keep digital records of your income and expenses
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Use MTD-compatible software
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Submit quarterly updates to HMRC
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Complete a final declaration at the end of the tax year
Does MTD apply to your online business?
That really depends on how your online business is set up and how much you earn.
If you are
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A VAT-registered business → then yes, MTD is already required for recording and submitting VAT
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A sole trader → you will need to comply with MTD for Income Tax once you reach the threshold
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A limited company → MTD is not required yet (but it may be possible in future)
When will MTD for Income Tax start for online sellers?
MTD for Income Tax has recently begun for self-employed people (including online sellers) and landlords with qualifying income over £50,000. It will then apply to those earning over £30,000 in April 2027 and those earning over £20,000 in April 2028.
Qualifying income refers to your total income before expenses, not your profit. So even if your margins are small, you may still need to comply if your total revenue exceeds these thresholds.
If your online business is growing, it doesn't hurt to get ahead so you're prepared when MTD applies to you.
Does it matter where you sell online?
Ultimately, no. It doesn't matter where you sell online, whether it's Amazon, eBay, Shopify, Etsy, TikTok Shop, or even your own website.
HMRC looks at your income and tax status, not where your sales come from.
So what really matters is:
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Your total income (gross income)
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Whether you're self-employed or running a business
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Your taxable turnover and qualifying income
What do online sellers need to do under MTD?
Currently, Making Tax Digital affects two areas: VAT and Income Tax. Here's what you need to do when MTD applies to you.
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MTD for VAT If you're part of a VAT-registered business, you're already required to:
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MTD for Income Tax If you're earning income from self-employment or property and meet the MTD threshold, instead of one annual Self-Assessment tax return, you'll need to:
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What counts as "digital records" for online sellers?
Gone are the days of paper records and piles of receipts. Now, with Making Tax Digital in place, everything must be kept... well, digitally. But what does that actually look like?
Digital record-keeping means storing your sales and expenses in a digital format using compliant software or apps. You can't rely on using paper or manual spreadsheets alone.
For online sellers, this typically includes:
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Sales data from platforms like Amazon, Etsy, eBay, or Shopify
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Income from your own website
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Platform fees and transaction fees
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Advertising costs (e.g. paid ads)
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Shipping and fulfilment costs
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Refunds and adjustments
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VAT breakdowns (if applicable)
But when you sell online, your data may sit across multiple systems, such as your eCommerce platform, payment gateways, and accounting software. The key is making sure this information is captured accurately and can be submitted to HMRC digitally and regularly.
Can you use spreadsheets for MTD?
Yes, you can use spreadsheets for MTD, but you will also need compatible bridging software to submit your data to HMRC. Doing so allows your spreadsheet to connect to the MTD system.
It's great for people who are digitally exempt from MTD due to age, health, or another valid reason. But for many online sellers, this approach can be challenging as their business grows. Spreadsheets may not be as fast and efficient as accounting software, which can add time and increase the risk of errors.
Choosing the right accounting software for your online business
If you sell products online, you should already know how much difference the right tech can make. MTD software is also hugely important. Not only does it keep you compliant, but it also helps you automate record keeping, track income and expenses, generate reports, and submit data directly to HMRC.
We regularly recommend MTD-compatible software, such as:
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Xero
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QuickBooks
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FreeAgent
For eCommerce businesses, it's often beneficial to use connectors like A2X or Link My Books. Doing so allows you to pull in sales data from other platforms and organise it properly. Check out our blog to learn more about which of these accounting tools we recommend most for eCommerce businesses.
How to become MTD compliant (in 6 simple steps)
So, you've got a feeling you need to apply for Making Tax Digital? It doesn't need to be complicated, but we understand that it can feel overwhelming if you're not sure where to start.
We've broken down the process into 6 straightforward steps:
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Check if MTD applies to you
Look at your income, business structure, and VAT status. -
Register with HMRC
You'll need your Government Gateway details and unique taxpayer reference. -
Choose the right software
Use MTD compatible software that suits your business. -
Connect your sales platforms
Link your Amazon, eBay, Shopify, or website data. -
Keep digital records
Track your income and expenses consistently. -
Submit updates correctly
Send quarterly summaries and your final declaration on time.
That's it! But if you think you need help from experts who've done it day in and day out, then don't hesitate to reach out. We'll gladly answer any questions you have and guide you through the process.
Common mistakes online sellers make (and how to avoid them)
If you're feeling a bit unsure about Making Tax Digital, that's understandable. For many online sellers, especially if your venture started as a side business, this is all new. There's a lot to get your head around, from new rules to the right software to remembering those deadlines.
Mistakes are easy to make, but they're also easy to fix once you know what to look out for.
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What to watch for |
How to avoid it |
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Not realising MTD applies to you |
Check your income and business setup early. Even if you're just side hustling, it's worth confirming where you stand. |
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Mixing personal and business finances |
Set up a separate business bank account to keep your finances clear and easier to manage. |
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Relying too heavily on spreadsheets |
Move to accounting software that works with Making Tax Digital to prevent errors and save yourself some time. |
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Leaving everything until the last minute |
Get into a regular routine for updating your records — little and often makes things much easier. |
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Not tracking all your expenses properly |
Remember to keep a record of everything (platform fees, ads, shipping costs, and so on) so nothing gets missed. |
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Using tools that don't integrate properly |
Choose software that connects your eCommerce platform, payment provider, and accounts to avoid manual work. |
Do you need an accountant for MTD?
You don't legally need an accountant for Making Tax Digital, but many online sellers like to work with one for peace of mind. An eCommerce accountant can help you work out if MTD applies to you, help you choose the right software, and handle the day-to-day accounting, keeping you compliant every step of the way.
Ultimately, the decision is yours, so it really depends on whether you have the time and confidence to manage MTD on your own.