The short version
- One test decides almost everything: HMRC's own guidance is that an expense must be "wholly and exclusively" for the business. Stock, eBay and Sellhelm's own fees, postage, marketing and professional fees all clearly pass it.
- Costs that are part business, part personal - a home office, a phone, internet - have to be split, and HMRC's own flat-rate "simplified expenses" figures let most small sellers skip the harder job of working out an exact proportion.
- Equipment and vehicles are usually not a simple expense at all - they typically fall under capital allowances, a different set of rules with their own timing.
- The £1,000 tax-free trading allowance is a genuine alternative to claiming expenses, not something you get on top of them - a seller has to pick one approach for the year, not mix them.
- Records need keeping for a specific length of time, not "a while" - GOV.UK's own wording is at least 5 years after the 31 January submission deadline for the tax year in question.
The one test that actually decides what counts
HMRC's own guidance on self-employed expenses is built around a single phrase worth knowing precisely: a cost has to be incurred wholly and exclusively for the business to be deducted from taxable profit. See GOV.UK's own guidance on expenses if you're self-employed, checked 26 September 2026. Money taken out of the business for personal use is explicitly excluded, and anything with a mixed business-and-personal purpose has to be split so only the business portion is claimed - the test is not "did this help the business at all", it is "was this specifically for the business, and if not entirely, what share genuinely was."
What clearly counts for a dropshipper
- Stock bought for resale - what you actually pay your supplier for the goods themselves.
- eBay's own selling fees - the final value fee, the per-order fee, the regulatory operating fee, and any Promoted Listings spend.
- Software and subscriptions used for the business - Sellhelm's own one-off payment falls under this, the same as any other tool bought specifically to run the shop.
- Postage, packaging and delivery costs you pay yourself.
- Marketing and advertising, including anything spent promoting listings beyond eBay's own tools.
- Professional fees - an accountant, a solicitor, anything paid for genuine business advice.
- Bank charges and card processing fees that relate to the business account, not a personal one.
None of these need apportioning - they are either a business cost outright, or they are not a cost at all.
The costs that have to be split, and the flat rates that make it easier
A phone used for both personal calls and supplier messages, home broadband used for both browsing and running the shop, a room in the house used for packing orders alongside everything else it is used for - none of these are wholly business costs, and HMRC does not accept treating them as if they were. The honest approach is working out a fair proportion: if a room is used for the business a quarter of the time it is used for anything, a quarter of the relevant household cost is the claimable share.
Working that proportion out precisely, bill by bill, is exactly the kind of job simplified expenses exists to remove. Instead of calculating an exact share of household bills, a sole trader can use HMRC's own flat monthly rate based on hours spent working from home for business: £10 a month for 25 to 50 hours, £18 for 51 to 100 hours, and £26 for 101 hours or more. See GOV.UK's own simplified expenses guidance, checked 26 September 2026. There is an equivalent flat mileage rate for a vehicle used partly for the business - 45p a mile for the first 10,000 business miles in a tax year, 25p a mile after that - which is worth knowing even for a dropshipper who does not think of themselves as doing much driving for the business, since a supplier collection or a Post Office run still counts.
Simplified expenses are optional, not compulsory, and a seller can mix methods - flat-rate mileage for the car while claiming other costs at their actual, worked-out figure, for example. What is not allowed is switching how a specific vehicle is treated partway through owning it: whichever method is chosen for that vehicle has to stay in place for as long as the business keeps using it.
Why a dropshipper's cost of goods is usually simpler than a shop's
A retailer holding stock has to value what is left unsold at the end of the year, because goods bought but not yet sold are not a cost of that year's trading - they are stock, carried forward. A dropshipper who only orders from a supplier once a buyer has actually paid on eBay, rather than holding stock ahead of a sale, rarely has that problem in any meaningful way: the goods bought in a year and the goods sold in that year line up closely, because almost nothing was bought without an order already behind it. That is one of the genuine, quieter advantages of the model over holding stock upfront, and it is worth knowing it is not an accident - it is a direct result of only ever buying against a confirmed sale.
The costs that are not a simple expense at all
A new laptop bought to run the shop, a printer for shipping labels, shelving for stock, a vehicle bought outright for the business - these typically do not go through as an ordinary expense in the year they are bought. They usually fall under capital allowances, a different set of rules for the cost of things the business goes on to use over several years, with their own timing for how much can be claimed and when. Treating a capital purchase as an ordinary expense, or the other way round, is a common way an otherwise careful seller gets their own numbers wrong - if a purchase is anything more substantial than a genuinely small, quickly-used-up item, it is worth checking which category it actually belongs in before assuming.
The £1,000 trading allowance: an alternative, not an extra
Every self-employed person gets a £1,000 tax-free trading allowance, deducted from turnover instead of actually claiming individual expenses. For a very small or very early shop, where real costs come to less than £1,000 for the year, taking the flat allowance instead can mean less to work out and no lower a result. The trade-off is genuine, though: a seller cannot use the trading allowance and also claim their real expenses on top of it for the same income - it is one or the other, chosen for the year, and the choice is worth actually running the numbers on rather than defaulting to whichever sounds simpler.
How long records actually need keeping
GOV.UK's own wording on this is specific: records must be kept "for at least 5 years after the 31 January submission deadline of the relevant tax year." See GOV.UK's own guidance on how long to keep your records, checked 26 September 2026. In practice that means a receipt for a cost claimed on the 2025 to 2026 tax return, filed by 31 January 2027, needs to still exist until the end of January 2032 - considerably longer than most sellers assume, and long after the shoebox of receipts from that year has usually been thrown away. A supplier invoice saved the day it arrives costs nothing; the same invoice, needed years later because HMRC opens a check into that year, can be genuinely difficult to recover if it was never kept.
Why getting these categories right is about to matter even more
Keeping expenses properly categorised, rather than lumped into one rough total, is becoming a genuine legal requirement for more sellers, not just good practice. Making Tax Digital for Income Tax became mandatory from 6 April 2026 for sole traders and landlords with qualifying income over £50,000, extending to over £30,000 from April 2027 and over £20,000 from April 2028. See GOV.UK's own guidance on when Making Tax Digital applies to you, checked 26 September 2026. Under it, digital records have to be kept throughout the year and a summary sent to HMRC every quarter through recognised software, rather than everything being reconstructed once a year from a shoebox of receipts.
The threshold that matters here is qualifying income, which means gross turnover - the total of what actually sold, before any expense is deducted - not profit. A dropshipper can be running on a modest real profit margin and still be well over the threshold on turnover alone, since eBay's fees and the cost of goods have not been taken off that figure yet. A seller who has never checked their own turnover against these figures, on the assumption that "profit" is what counts, is the seller most likely to be caught out by which year this actually starts to apply to them.
A small worked example
A seller spends £3,373 on stock, £692 on eBay's own fees, £70 on shop subscription and promoted listings, £64 on advertising, £41 on software and subscriptions (Sellhelm included), £37 on phone, internet, stationery and office costs, £15 on postage bought separately from what eBay collects, and £7 on bank charges over a tax year - a genuine spread across several categories, not one dominant cost. None of that £4,299 needs splitting except the phone and internet portion, which is where an honest business-use proportion, or the flat monthly home-working rate, actually gets applied. Total, categorised properly, that full spread of costs is what actually comes off turnover before profit is worked out - not a single guessed "outgoings" figure that misses several of these categories entirely.
Where this stays a job for an accountant, not for the program
Sellhelm's own Finances keeps a genuine record of what actually came in and went out of the business, categorised the way a tax return uses, so the numbers above are already sitting in one place rather than scattered across bank statements and a shoebox of receipts. What it deliberately does not do is decide which category a specific cost belongs in, whether something is a capital purchase, or whether the trading allowance beats claiming real expenses for a specific seller's numbers - those are exactly the judgement calls an accountant exists for, and Sellhelm's own terms say plainly that tax decisions stay the seller's own responsibility, with real advice if there is any doubt.
Questions people ask
What is the test HMRC uses to decide if something is a business expense?
The expense must be incurred "wholly and exclusively" for the business. A cost with a personal element as well has to be split, and only the business proportion can be claimed.
Can I claim eBay fees and Sellhelm as a business expense?
Yes. eBay’s selling fees and any software bought specifically to run the business, Sellhelm included, are ordinary business expenses, the same as any other tool or subscription used for the shop.
Can I claim the full cost of a laptop or printer I use for the shop?
Usually not as a simple expense in the year of purchase. Equipment like this typically falls under capital allowances, a separate set of rules for costs the business uses over several years, rather than an ordinary deduction from that year’s profit.
Should I use the £1,000 trading allowance or claim my real expenses?
Whichever gives the better result for your own numbers - but not both at once. If your genuine costs come to less than £1,000 for the year, the flat allowance can mean less to work out for a similar outcome; above that, claiming real expenses is usually worth more.
How long do I need to keep receipts for my eBay dropshipping business?
At least 5 years after the 31 January submission deadline for the tax year the receipt relates to - so a cost claimed on a return filed by January 2027 needs its record kept until at least January 2032.
Can I claim a flat rate for working from home instead of working out real costs?
Yes, using HMRC’s simplified expenses flat rates for home working - £10, £18 or £26 a month depending on the hours spent working from home for the business, instead of calculating an exact share of household bills.
Does Making Tax Digital apply to eBay dropshippers?
Yes, on the same basis as any other self-employed person: it became mandatory from April 2026 for qualifying income (gross turnover, not profit) over £50,000, extending to over £30,000 from April 2027 and over £20,000 from April 2028.