I used to work in insurance and can advise you that there is no legal or contractual requirement that you have public liability insurance to sell on Folksy.
Some people keep public liability policies for a couple of reasons. The first is that they do craft fairs (outside of Folksy) and the fair organizers insist on insurance as part of the contract they sign to take part in the fair. The second reason is that some makers are more cautious than others and want to protect themselves in case somebody injures themselves using one of their products and makes a claim for compensation.
I personally do not carry public liability insurance because I think that it is frankly money for old rope. Unless your product is high risk like cosmetics, food, or children’s toys then it is hard to imagine how an adult could injure themselves whilst using anything on Folksy properly.
Some may come back and say “But what if they are using it improperly?” In this country (the UK) it is still the case that if your adult customer uses your product in a silly way, then they cannot claim if they are injured by it. This may be different to the situation in the US, and the horror stories from across the pond probably account for the way many people feel about insurance being necessary or advisable.
Really you have to make the decision yourself based on how happy you are to take the risk of being claimed against. I have been on Folksy for several years now and have never had anyone claim against me. You would also have to increase your prices in order to take account of the money you pay to the insurance company in premiums.
As far as tax is concerned, you should notify HMRC if you are earning money through Folksy. Do not expect them to be very interested if you are earning less than the £11,000 threshold, though. The tricky part is if you have another job, your earnings from Folksy need to be added to your income from the other job and that could, in some circumstances, push you up over the threshold and you will be taxed then on your sales. i’m not sure what the rules are for people in receipt of benefits, but I can imagine that there may be some effect on those too, if a seller was making a lot of money. The Citizens Advice Bureau could tell you much more about this if you wanted to know.
That’s about all I can think of at the moment,