Selling digital downloads—whether it’s eBooks, templates, music, software, or courses—can be a great way to earn income online. But once you start making sales, it’s important to understand how to handle taxes properly. Failing to do so could lead to penalties or missed obligations.
Understand that digital sales are taxable
Many creators assume that selling digital products is tax-free because there’s no physical item. In reality, digital sales are often subject to tax just like physical goods—especially as global tax laws catch up with online business.
Depending on your location and where your customers are based, you may need to pay:
- Income tax
- Self-employment tax
- VAT (value-added tax) or sales tax
Income tax and self-employment
If you earn money from selling digital products, that income must usually be reported for tax purposes. In the UK, for example, you must register as self-employed with HMRC once your income exceeds £1,000 in a tax year. You’ll then be responsible for completing a Self Assessment tax return.
Other countries have similar requirements. You may also need to pay national insurance contributions, depending on your earnings.
VAT on digital products (especially in the UK and EU)
One of the most confusing aspects of selling digital products is VAT (value-added tax), particularly in the European Union.
If you sell digital services or downloads to customers in the EU or UK, VAT may be due in the country where the customer resides—not just where you are based. This is known as the place of supply rule.
To simplify this process, the VAT MOSS (Mini One Stop Shop) scheme was introduced, but this has now been replaced in the EU by the OSS (One Stop Shop) and in the UK by domestic VAT rules. You may need to:
- Register for VAT in your own country
- Collect and remit VAT based on your customers’ locations
- Keep records of your digital sales (including customer location and VAT rates charged)
Selling through platforms
Many platforms now automatically handle some tax issues. For example:
- Etsy, Shopify and Payhip may collect VAT or sales tax on your behalf (depending on your settings and business status). PUSH, does not, so it’s important you are aware of this on any platform you use.
- You’re still required to report your earnings for income tax purposes.
- If you sell through your own website, you’ll likely need to handle VAT and taxes yourself.
Always check the fine print and tax settings on the platform you use.
Keep good records
To make tax time easier, keep records of:
- All your sales and refunds
- Customer location (for VAT purposes)
- Any fees paid to platforms or payment processors
- Receipts for business expenses (like design software, hosting, or advertising)
Using accounting software or a spreadsheet from day one can save you a lot of stress later.
Consider professional advice
Tax rules for digital products can be complicated, especially when dealing with international sales. It’s a good idea to speak to an accountant or tax adviser who understands online businesses, particularly if you:
- Earn consistently from digital sales
- Sell to international customers
- Plan to scale your business
Handling taxes as a digital seller may seem overwhelming at first, but it’s essential for building a sustainable, compliant business. Whether you’re earning a little on the side or building a full-time income, staying on top of your tax obligations will help you avoid problems and focus on what you do best—creating great products.
