TikTok Shop turned creators into retailers at a speed the tax system has absolutely noticed. If you're selling — your own products, or earning affiliate commission showcasing other people's — you're trading. Several rules bit the moment you made your first sale, and one of them, the stock rule, is the reason sellers routinely file a return that is wrong by four figures.
This post walks the whole thing through with the real 2026/27 rates and a full worked calculation.
The £1,000 line is drawn on gross sales, not profit
The trading allowance covers up to £1,000 of gross trading income a year. Gross means the total before any costs come off — HMRC's own wording is that it is the figure before any allowances or expenses are taken off. A seller who turns over £4,000 and spends £3,600 on stock has £400 of profit and is nowhere near the allowance on profit, but is four times over it on gross. They register.
Past £1,000 of gross, you register for Self Assessment by 5 October following the end of the tax year you crossed it in. Sales made in 2026/27 (the year ending 5 April 2027) mean registering by 5 October 2027, filing by 31 January 2028 and paying on the same day.
TikTok reports you — and the reporting threshold is not a tax threshold
Under the digital platform reporting rules, TikTok collects your details and passes your sales figures to HMRC each January for the preceding calendar year. Your details are left out of that report only if both of these are true across the calendar year: fewer than 30 sales of goods, and under €2,000 (roughly £1,700) of revenue from them.
Two things get misread here. First, it is an and, not an or — 31 small sales puts you in the report whatever the value. Second, and more important: being under the reporting threshold does not make the income untaxed. The reporting rules decide what HMRC is told; the trading allowance decides what you owe. They are different numbers with different tests, and the tax one is far lower. Our post on what platforms actually send HMRC covers the data itself.
Commission sellers: your income is the commission, gross
Affiliate commission for showcasing other people's products is trading income like any other. The trap is the gross-versus-net one. Your income is the commission TikTok credits you, not the amount that lands in your bank after fees are clipped. Record the credited commission as income and the fee as an expense.
The profit is identical either way, which is why sellers shrug at it. The turnover is not identical — and turnover is what the VAT threshold and the Making Tax Digital threshold are tested against. Netting quietly moves both of your early-warning lights.
The stock rule that decides your bill
Here is the one that costs money, and the answer changed in April 2024.
The cash basis is now the standard way a sole trader records income and expenses — you no longer elect into it, you elect out of it into traditional accruals accounting. Under the cash basis you deduct stock when you pay for it. Buy £26,000 of inventory in the year and £26,000 comes off your profit, even if a chunk of it is still boxed up in the spare room on 5 April.
Under traditional accruals accounting the older rule applies: profit reflects what you sold, so unsold closing stock is added back and is not yet a cost.
Both are legitimate. They produce very different bills in a year when you scale inventory up.
Gross sales (the full price customers paid): £62,000. Costs paid during the year: stock £26,000, TikTok commission and payment fees £4,340, shipping and packaging £5,100, ads and samples £3,200, plus £1,800 of home-office share, phone and accountancy. Total £40,440. Profit on the cash basis: £21,560.
Income tax: the personal allowance is £12,570, so £8,990 is taxed at the 20% basic rate = £1,798. Class 4 National Insurance: 6% on profits between £12,570 and £50,270, so £8,990 × 6% = £539.40. Class 2 is treated as paid without payment because profits exceed the £7,105 small profits threshold. Total due: £2,337.40.
Now the stock rule. Suppose £9,000 of that £26,000 of stock was still unsold on 5 April 2027. On traditional accruals accounting it is added back: profit becomes £30,560, income tax £3,598, Class 4 £1,079.40 — £4,677.40. Same seller, same year's trading, £2,340 apart.
Read that gap correctly, though. It is timing, not a permanent saving: the £9,000 comes off later, when the goods sell. And there is a sting on the way out — a cash-basis trader who ceases to trade brings the value of remaining stock in as a receipt, so unsold inventory gets taxed at the end whatever happens. If you are scaling inventory hard, the cash basis pushes tax later. If you are winding down, it pulls it forward.
VAT arrives at retail speed
The registration threshold is £90,000 of taxable turnover on a rolling twelve-month basis — any twelve consecutive months, not your accounting year. It counts your full selling price, not your margin, which is why product sellers hit it years before service creators on the same profit.
Do the arithmetic on the example above. £62,000 a year is around £5,200 a month. Grow 45% and you are at £7,500 a month, which is £90,000 a year. Suppose the rolling twelve months to 31 July 2027 is the first period over the line: you have 30 days from the end of that month, so you apply by 30 August 2027 and you are registered from 1 September 2027 — the first day of the second month after crossing.
What it costs is the part to plan for. On £90,000 of standard-rated sales, the VAT inside your prices is 20/120 of them, or £15,000. Unless you raise prices, that comes straight out of margin: on a £24 item, £4 of what you charged is now HMRC's. Input VAT on stock, shipping and platform fees comes back the other way, which softens it for product sellers considerably more than for creators selling their own content. The creator VAT guide works through both sides.
Samples, gifted stock and free product
Product sent to you in return for content is not free. It is barter: you supplied promotion, they supplied goods, and both sides are taxable at the value of what changed hands. Log it at retail value on the day it arrives — the gifted goods and brand deals guide sets out how to value it and what to do about parcels you never asked for.
Stock you buy yourself to send out as samples is a normal business cost, deducted when paid on the cash basis.
Refunds, returns and the margin truth
Social commerce return rates are brutal, and refunds are the line sellers forget to record. A refund reduces your income, but the outbound shipping and the commission on the original sale often do not come back. Track refunds as their own figure rather than netting them invisibly against sales — it is the only way to see whether a product line is actually profitable.
Between product cost, shipping, commission, ads and refunds, the gap between revenue and profit in social commerce is wide. In the example above, £62,000 of sales produced £21,560 of profit: a 35% margin, and that is a seller doing it properly.
What to do this week
- Add up your gross sales since 6 April — gross, before fees. Over £1,000, diarise 5 October as your registration deadline.
- Open a separate business account and route every TikTok payout and every stock purchase through it.
- Download your TikTok statements monthly and reconcile each one to the payout, so the fee and the gross sale are both recorded.
- Decide your basis deliberately — cash or accruals — rather than discovering it in January. The bigger your stock swings, the more it matters.
- Track rolling twelve-month sales in one cell of a spreadsheet, against £90,000.
- Set aside 25% of profit. In the worked example the actual tax was 10.8% of profit, but the first January also brings payments on account, which is what really catches people.
- If your gross self-employment income was over £50,000 in 2024/25, you are already inside Making Tax Digital for Income Tax — quarterly updates, not one annual return.
Getting the books right is the whole job here; the tax simply follows from them. That is exactly what we set up for sellers, with FreeAgent included, from £19 + VAT a month.
