From selling the odd jumper that doesn’t fit you anymore, to running a business selling goods online, a whole spectrum of different scenarios might apply. Your unique circumstances will dictate whether you need to register with HMRC to pay tax.

We’ll go over the various rules and regulations around online selling so you can work out which compliance boxes to tick off.

What are the tax reporting rules if I sell on online marketplaces?

Due to the number of people using online marketplaces like Vinted, Depop, eBay, Etsy, and beyond to sell online, the marketplaces are legally obligated to tell HMRC about what you earn from selling through their platforms if you’re classed as an online trader.

These regulations don’t just deal with the sale of physical items. Providing services or renting out accommodation are also covered, so you might also be affected if you supply anything through the likes of Fiverr, Uber and Airbnb.

Am I classed as an online trader?

Online trading generally applies to those who sell with the intention of making a profit through selling things online.

This also includes those who buy items with the specific intention of reselling them on platforms like Vinted, Depop, eBay, and Etsy at a higher price. In HMRC terms you’re classed as an online seller if you:

• Make more than 30 sales
• Receive more than €2,000 (equal to around £1,700)

Being classed as an online trader doesn’t necessarily mean you’ll have a tax bill

Meeting the criteria above simply means you’ve hit the threshold for a marketplace to pass your details on to HMRC based on the sales you make through that platform.

It doesn’t necessarily mean you’ll need to pay tax on them. Likewise, being under the criteria doesn’t mean you won’t have to pay tax on your earnings! We’ll explain this next.

Do I need to register with HMRC as an online seller and pay tax?

You will need to register with HMRC and report what you get as an online seller if the total income you receive from self-employment or other miscellaneous activities is more than the £1,000 trading allowance.

This means you can earn up to the sum of £1,000 from self-employment or miscellaneous trading each tax year without telling HMRC, or paying tax on those earnings.

You can benefit from this allowance even if you earn money from other sources, such as employment. You could earn wages from a part-time job, for instance, and still use the trading allowance against the income you generate from a self-employment side hustle selling things online.

So, if you make 35 online sales, you might not necessarily need to pay tax on anything if the total amount you receive from them is less than £1,000.

What happens if I earn more than the trading allowance?

If the money you make is more than the £1,000 trading allowance, then you’ll need to register for self-employment and submit tax returns to HMRC.

It’s really important that you keep records of your sales so that you know when it’s time to register. And remember, you only get the allowance once in a year, not a separate allowance for each platform!

Keeping good records will also help you stay on top of your ecommerce expenses – that way you’ll be able to offset them against your tax bill.

Whatever your circumstances, you must make sure you’re doing everything by the book. Even if it’s just an honest mistake, missing deadlines or holding information back from HMRC can lead to serious trouble and hefty fines!

 
Understanding the rules and regulations around when to tell HMRC if you’re selling things online can be complicated. Check out our accounting support hub for more help, or to ask a tax question.

The post Can I Sell Things Online Without Registering with HMRC? appeared first on The Cheap Accountants.

We’re here to help you understand what VAT is, and whether your e-commerce business needs to register for VAT.

What is an online marketplace?

An ‘online marketplace’ sounds self-explanatory – a marketplace that’s based online, but for a business to officially call itself one, it needs to hit a specific criteria.

For HMRC, an online marketplace is a business that has a website, app, or both that manages the sale of goods to customers. There are also conditions based on how the goods are listed, and how involved the business is in selling those goods.

What counts as an online marketplace

To qualify as an online marketplace the platform must:

• Set the terms and conditions on how goods are supplied to customers
• Be involved in either authorising or facilitating customers’ payments
• Have some involvement in either the ordering or delivery of the goods

If you’re still scratching your head at what a marketplace is, think of sites like Amazon, eBay, and Etsy.

They host a range of independent sellers and businesses but also set the terms and conditions, handle the payments, and are often involved in the shipping process at some point.

What doesn’t count as an online marketplace

A platform will not be classed as an online marketplace if it only provides one of the following:

• Either the listing or advertising of goods
• The processing of payments for the supply of goods to the customer
• Listing the products, but either redirecting or transferring customers to another website or app to purchase the goods (without any further involvement)

Why would I use an online marketplace for my business?

Running your business on an online marketplace is a cost-effective way of reaching a wider audience who will often be more comfortable purchasing your products on a site they trust. It’ll mean you pay less in advertising, and you don’t have to run your own website – or have any social media if you don’t deem it necessary.

This could be beneficial if you’re starting out, and you don’t have the time to build a brand outside of selling your goods.

So where does VAT come into selling through an online marketplace?

If your taxable sales are below the VAT registration threshold, you won’t need to register for VAT just because you sell on an online marketplace. But most online marketplaces are VAT registered in their own right, so platforms such as Etsy will automatically add VAT to your taxable sales.

The rate of VAT they must charge depends on what category the item comes under.

What is the VAT registration threshold?

You’ll need to register for VAT if your taxable turnover goes above £90,000 in a 12-month period (this is the current VAT registration threshold) or you expect your turnover to be over the threshold within the next 30 days. This could be for many reasons, for example, you’re hosting a Black Friday sale and anticipate the volume of your sales pushing you through the threshold.

You can also volunteer to register for VAT. Some businesses do this because they expect they’ll reach the threshold eventually, and don’t want it to look like they’ve raised their prices when it finally comes to adding VAT. Other businesses do it so they can claim VAT back on their purchases.

Will the online marketplace need my VAT details?

Yes, online marketplaces are required to ask for the VAT registration number of anyone they think should be registered.

Carrying on with the Etsy example, if your gross sales meet or exceed the VAT registration threshold in a 12-month period, Etsy will ask you to add your VAT number to your Etsy store. Your account will be placed on hold until this is complete.

Being VAT registered means all the usual reporting rules will apply when you make VAT submissions to pay or claim back any VAT owed.

The VAT rules are different for:

• Overseas goods that are sold directly to customers in the UK
• Goods that are sold from the EU to customers based in Northern Ireland that are not registered for VAT in the UK
• If you move any goods between Northern Ireland and the EU

It’s worth noting the VAT threshold is based on all of your income, so if you sell on both Etsy and eBay, and your total taxable turnover from both sites is above the threshold, you’ll need to register for VAT.

All VAT-registered businesses must add VAT onto the goods and services they sell which qualify.

How do I register for VAT?

Registering for VAT is fairly simple, and most businesses can register online.

Before you can register though, you will need a Government Gateway user ID and passport to hand, as well as information about your business. For example, if you run a limited company you’ll need to fill in things like your company name, bank details, and turnover.

Keeping VAT records

Keeping VAT records is a legal requirement, and once you’re registered you’ll need to make VAT submissions to tell HMRC about the VAT you’ve charged to customers, as well as any VAT you’ve paid.

You’ll need to keep your VAT records for 6 years from the date any goods are sold, so it’s well worth investing in good bookkeeping software will ensure you don’t lose any important documents.

 
Need some help on VAT? Check out our VAT guide for more expert advice!

The post Do I Need to Register for VAT if I Sell Through an Online Marketplace? appeared first on The Cheap Accountants.

What you may not be clued up on, however, is how tax works if you’re an eBay seller – and this is crucial to understand if you think you might want to start selling on the platform whether full-time or on the side. Selling things online as opposed to in-store doesn’t make you exempt from having to pay tax.

So let’s take a look.

Do I need to pay tax on eBay sales?

It really depends, but in all likelihood, yes.

Basically, if you earn over the trading allowance (currently £1,000) from eBay or a combination of places, you must register for Self Assessment and report your earnings to HMRC. One thing to bear in mind is that this threshold is a cumulative amount, meaning any other self-employed income you have (in addition to that from eBay) counts towards it for the year.

It’s also worth noting that eBay are legally required to report some sales data to HMRC, so don’t try to get out of paying tax by not declaring your income. There’s no escape!

The amount of tax you’ll pay is ultimately dependent on what business structure you choose, with most people registering as either a sole trader or limited company.

Does my business structure affect how I pay eBay tax?

The structure you choose has a big impact on how and when you need to report and pay the tax you owe on any eBay profits. If you plan on treating your eBay business as a side hustle, then you might register as a sole trader. On the other hand, if you plan on going all-in, you might consider registering your business as a limited company. It really does depend on you and your circumstances, but here’s a quick breakdown of each.

Selling on eBay as a sole trader

If you’re a sole trader, you are your business, so there’s no legal separation between you and it.

This means you’re personally liable for whatever happens legally and financially, which in turn means your personal assets are at risk – or would be should anything go wrong.

You’ll file Self Assessment tax returns (MTD Income Tax depending on how much you make), and pay income tax and National Insurance on your profits. The rate of tax you pay depends on the total amount of taxable income you earn in a year.

You’ll need to keep accurate, detailed records of your business’s financial activity regardless of which structure you choose, but there’s generally less admin required when you operate as a sole trader.

Learn more about becoming a sole trader

Selling on eBay as a limited company

The main difference is that you’re seen as a separate legal entity to your business, and this means you’ll file Company Tax Returns rather than Self Assessments, so you’ll pay Corporation Tax on your company’s profits.

When you register your business with Companies House, they automatically enrol you for Corporation Tax with HMRC – but there’s still a lot of paperwork to complete, with you needing to appoint such roles as directors and shareholders, as well as set out how the company will operate.

The process of incorporating a limited company is quite a bit more involved than that of registering as a sole trader, and there’s a fee too.

On top of submitting Company Tax Returns, you’ll also need to report your personal income from the company (e.g. dividends), which you can do via a separate Self Assessment.

Learn more about operating a limited company

Is it more efficient to be a sole trader or limited company as an e-Bay seller?

This really depends on your total profit, who else is involved in your business, and any other income you might earn! It might be helpful to chat to an accountant about it but even if you do decide to register as a sole trader for now, you can always incorporate your company at a later date.

That said, some people just prefer to operate a limited company, so their business is a separate legal entity from themselves as a way to protect their personal assets.

Do I need to be VAT registered to sell on e-Bay?

Again, it depends. You’ll definitely need to be registered for VAT and need to submit VAT returns if:

• Your sales exceed the VAT taxable turnover threshold (currently £90,000) over a 12-month period
• You’re a seller outside the UK and store stock within the UK
• You’re a UK seller who ships things to the EU
• You’re storing stock in a specific country

You can also voluntarily register for VAT, but it’s often useful to speak to an accountant about what this would mean for your business.

It’s also worth noting that eBay will sometimes collect VAT on your behalf if your buyers are based in the EU.

Will I need to pay Capital Gains Tax on eBay sales?

This type of tax applies to the profit you make on personal assets you’ve ‘disposed’ of. It’s not based on how much you sold something for, but the gain (or profit) you received from that specific sale. If your total gains are less than £3,000, though, you don’t have to report anything to HMRC.

What’s important here is motivation for the sale. If you’re getting rid of some assets then you’ll usually trigger Capital Gains Tax, but if you’re buying things with the intention of selling them on, then you’re more likely to fit under what HMRC describe as the ‘badges of trade’. This means you’re acting more like a business, so you’ll need to pay tax like one.

Are there any other fees?

There can be, depending on what it is you’re selling. For example, there might be goods and services tax (GST), as well as listing fees added to your seller invoice.

Head to eBay’s fees for business sellers page to learn more.

Will I need to keep a log of my eBay sales?

Regardless of the legal structure of your business, you’ll need to keep records so you can track your eBay income and expenses. You’ll need this information so you can make sure you’re complying with your tax recording and reporting duties – and it will make completing a tax return much easier too! You might:

• Take on all the bookkeeping and accounting responsibilities yourself, including the submission of tax returns and payment of tax due according to HMRC’s deadlines to avoid penalties. The type of tax returns you need to submit depend on how you structure the business when you register it
• Employ a team or person in-house to take on the responsibility of bookkeeping and accounting for your business
• Hire an accountant and/or bookkeeper to do it all for you in a timely and accurate manner

Can I claim expenses if I work from home?

Self-employed people are allowed to claim household costs that relate to the running of their business if they work from home. This will help reduce the amount of tax you need to pay, so it’s well worth getting to grips with what you might be allowed to claim for. We go into more detail about common expenses for eBay sellers in a separate article, but in terms of working from home it often includes things like:

• Electrical costs (such as lighting)
• Gas and heating
• Maintenance and repairs
• Internet and telephone costs

An accountant can help with this and offer advice on where you could be taking advantage of tax relief and allowable expenses to make sure your business is being as tax efficient as possible.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Paying Tax as an eBay Seller appeared first on The Cheap Accountants.

We’ll guide you through what expenses are and the types of things you can claim tax relief on when running an ecommerce business. This includes pre-trade expenses, because the sooner you start saving money, the better.
 

What are expenses?

Expenses are costs your business needs to incur in order for it to run effectively. For example, purchasing stock and packaging, paying for storage space, the cost of running your ecommerce website, and potentially hiring freelancers or staff.

When it comes to claiming expenses for tax relief purposes, you can only claim for those that HM Revenue & Customs (HMRC) deems an ‘allowable expense’.
 

What are allowable expenses?

As the name implies, allowable expenses are the business costs that HMRC allows you to offset against your taxable turnover.

To claim these expenses for your ecommerce business, they must also comply with HMRC’s rule that they are ‘wholly and exclusively for business use’.

Some allowable expenses are more obvious than others, like the products you purchase for your inventory. Things start to get a bit more complicated when you have costs that are divided between professional and private use such as working from home, your phone bill, or fuel.
 

What type of expenses can my ecommerce business claim?

Many different costs qualify as allowable expenses for different types of business but let’s focus on the ones most relevant to an ecommerce business.
 

Business insurance and other legal fees

Whatever the associated costs of business insurance and business-related legal fees, most of these will qualify as tax-deductible allowable expenses.

Remember, these can only be costs related wholly to the running of your business. Whatever you do, don’t try and hide personal insurance or legal fees in amongst your business costs. This could land you in hot water with HMRC and no taxpayer wants that.
 

Home office

If you work from home and use your home as a base for your ecommerce business, you can claim a proportion of these costs as expenses. This includes your phone, internet and utility bills.

Calculating expenses if you work from home can be tricky because it’s usually helpful to work out precisely how much you spend for business versus personal use, so you can use the method which is most tax efficient. You could calculate your expense claim for working from home with either:

• Simplified expenses (also known as the flat rate method)
• Cost method

An office or co-working space

If you use a co-working space or you have business premises (e.g. an office), you can claim the following as allowable business expenses:

• Rent and/or booking fees
• Office supplies and equipment
• Utility bills

Website running costs

As an ecommerce business, your website is a monumental part of your business, but it can get a little expensive. Fortunately, you can claim for a lot of the related expenses, including:

• Domain
• Web hosting
• Business email
• Technical support
• Software and hardware

Hiring freelancers or staff

If you’re hiring freelancers on temporary projects to help build your brand and set up your business, you could be able to claim tax relief on these costs. You might hire a freelance graphic designer to build your brand guidelines, for example, or an ecommerce photographer to snap and edit your products. If things get really busy, you might hire an employee to pack orders.

Watch out for IR35: If the relationship between you and your freelancer/contractor is more like employer and employee, you may be breaking IR35 regulations.
 

Mileage and travel

If you have to travel around for business, you’ll probably be allowed to claim:

• Travel, tickets and accommodation wholly for business-related activity
• Vehicle running costs (fuel, tax, insurance, maintenance and servicing)
• Food and drink which relates to the business trips you need to make – and only then within reason!
• Parking and congestion charges
• Tickets or admission for events (e.g. conferences and trade shows)

However, you aren’t allowed to claim:

• Travel between your home and another workplace that you expect to use for more than 24 months (e.g. an office or co-working space)
• Food and drink if it relates to things like client entertainment – or your weekly shop!

Training and learning

If you invest in training, learning and upskilling for the benefit of your ecommerce business, the costs can qualify as allowable expenses. This includes:

• Training courses
• Subscriptions to learning platforms or resources
• Books or online guides

Accounting fees

If you pay for bookkeeping software or you hire an accountant, the related costs qualify as tax-deductible. For those ecommerce businesses not fully set up yet, this also includes your initial company registration fees.
 

Cloud storage

As an ecommerce business, you’ll have a lot of information, digital assets and data that you’ll need to store somewhere. Many ecomm biz owners choose cloud storage as the perfect solution – which qualifies as an allowable expense!

What are pre-trade expenses?

Pre-trade expenses are the costs required to set the business up before you even start trading or make your first sale. This is particularly relevant for ecommerce businesses as often you’ll need to invest in stock before you can start selling.

Typical examples of pre-trade expenses include:

• Legal fees
• Accounting and bookkeeping costs
• Inventory
• Equipment
• Renting or buying business premises
• Your website and all the associated costs (e.g. domain)
• Insurance
• Marketing, branding and advertising
• Market research
• Recruitment or outsourcing
• Uniforms and protective clothing

This type of expense can also include assets you already owned before starting your business, such as a laptop or desktop computer.

What qualifies as a pre-trade expense?

Pre-trade expenses are expenses that:

• Would’ve qualified as an allowable expense if the business was up and running
• Were made wholly for business and trading-related purposes

It’s important to note that these costs must have occurred no longer than seven years pre-trading.

Pre-trade costs you can’t claim as expenses:

• Training courses
• Business premises maintenance
• Fines or penalties
• Business licenses
• Entertainment

Do I need an ecommerce accountant to help me claim expenses?

No – any qualified accountant will be able to help you identify, record and claim your allowable expenses to keep your tax bill down.

So, if you’re already working with an accountant who you know and trust, sticking with them is fine. However, if you’re looking for a new accountant for your ecommerce business, there are benefits to choosing one that has targeted experience in your niche.

For example, they’ll understand the nuances of your sector and they’ll be acutely aware of the specific rules and regulations for ecommerce businesses to keep you compliant.

Whether you choose to work with an ecommerce specialist or not, we’ve got you covered with some tricks and tips on finding and hiring a good accountant.

 
Looking for further support for your business? Head over to our info hub, where you’ll find a whole host of helpful resources.

The post What Expenses Can I Claim for my Ecommerce Business? appeared first on The Cheap Accountants.

One of the most crucial considerations before launching your new ecommerce venture is your business structure. This will inform important things like how and when you pay taxes, your personal liabilities, and even what tax relief is available to you.

We’ll guide you through all things ecommerce, including the different types of business structures you can choose from and how to decide on the best business model for you.
 

What is an ecommerce business?

An ecommerce (electronic commerce) business is one that sells products or services online. This can be anything from a small side hustle on an ecommerce platform like Etsy to a large business selling to hundreds of customers all over the world via its own website.

Basically, if you sell to customers on the internet, you have an ecommerce business. What you sell doesn’t matter. It could be physical products like clothes or candles, or digital products like online courses, music, or software.

One of the main benefits of starting an ecommerce business, in most cases, is the lower overheads and startup costs. Setting up a website or joining an ecommerce platform like Shopify, Wix or Squarespace, just to name a few, is typically cheaper than opening a bricks-and-mortar business because you don’t have the same location costs to think about. Plus, you don’t necessarily need to have set opening hours, either – so it can be much more flexible.
 

What are the different types of ecommerce business?

If you want to run your own ecommerce venture, you’ll need a clear idea of what type of business you want to be. This will be mostly dictated by what you sell, how you sell and who you sell to but it will also influence key things like your marketing strategy, outreach tactics and business plan.
 

Business-to-business (B2B)

A B2B ecommerce business is one that sells goods or services to other businesses online. A common example of this is a wholesaler selling products to a retailer. Another example could be a stationary brand selling printer paper and pens to a commercial office.
 

Business-to-customer (B2C)

A B2C ecommerce business sells directly to consumers. Gymshark and Nike are both examples of B2C brands as they sell their products to customers through their websites and online platforms. Netflix and Uber are other well-known electronic B2Cs. Amazon and Apple are examples of businesses that fit into both the B2B and B2C categories.
 

Customer-to-customer (C2C)

A C2C ecommerce business means that customers sell to other customers via a website or ecommerce platform. In the C2C model, customers are both the buyers and the sellers.

Popular C2C platforms you’ll almost certainly have heard of include:

• Airbnb
• eBay
• Etsy
• Fiverr
• Vinted

If the vendor is selling through a dedicated platform, like Airbnb or eBay for example, the platform facilitates transactions between customers and will typically take a fee for doing so.
 

Customer-to-business (C2B)

A C2B ecommerce business is one where consumers sell products or services directly to companies. This is a bit confusing but it basically means a smaller scale individual is selling to a business organisation

Freelancer platforms are a common example of this type of ecommerce business model, such as Upwork, PeoplePerHour and Fiverr.
 

How to choose an ecommerce business model

When starting an ecommerce business, you’ll also need to consider the right model for you. The ecommerce business model you choose will steer things like how you source products and manage inventory.

There are various ways you can set up and run a business when selling goods or services online so it’s important to do your research and understand your options.
 

Private label

The private label business model involves products made by an external, third-party company (i.e. a manufacturer), which you then sell under your own brand. This could be a great option for those who want to:

• Run a branded ecommerce business but don’t want to make the products from scratch
• Launch an ecommerce business but don’t have the time, funds or resources to create completely original products

Skincare products are a prime example of private label ecommerce. You can put your own branding and packaging on the products and sell them through your business without having to research or create the formulas yourself. You could simply tweak the ingredients to make the product unique to your brand.
 

White label

The white label model involves selling products made by a third-party manufacturer and rebranding them to sell through your business. Commonly white labelled goods sold on ecommerce sites include:

• Electronic goods
• Clothing
• Beauty and cosmetic products
• Digital software

White label and private label are often (and easily) confused. The important distinction to make is that white label goods are already pre-manufactured, and therefore can’t be tweaked or customised in the same way private label products can be.

This means the products themselves aren’t entirely new to your business, but you can put your own branded packaging on white label goods.
 

Dropshipping

The dropship ecommerce model means you don’t have to purchase, store or manage any inventory at all. Instead, when a customer buys something through your website or ecommerce marketplace, the manufacturer, wholesaler, or supplier of the item ships it directly to them.

With dropshipping, all you need to do is concentrate on marketing and selling the products. You don’t need to worry about dealing with stock or shipping.

This is a great option if you want to run an ecommerce business but don’t want to create or brand products. It’s also ideal if you have limited space for storing products.
 

Print-on-demand

Print-on-demand is similar to dropshipping in how the purchase and delivery logistics work. It can be more flexible and dynamic an option because items (e.g. t-shirts, mugs and notebooks) are only produced once an order has actually been placed.

Print-on-demand also leaves more room for brand differentiation and personalisation because you can provide your customers with designs to choose from. You won’t need to hold ready-made stock because the supplier takes care of the printing and shipping.
 

Wholesale

The wholesale business model involves buying physical products in bulk which you then sell to your customers. Wholesaling tends to make the most sense for those opting for a B2B or B2C structure.

One of the main benefits of wholesale is that you can purchase products at lower prices due to buying in bulk. The downside is that you almost always need a lump sum upfront to be able to buy large quantities of products and you also need space to store it all. That, or to take the risk of buying on credit.
 

Subscription

With a subscription model, you sell products or services to customers on a regular, structured basis and they pay you on a scheduled basis in return. Examples of ecommerce brands that run on a subscription model include:

• Graze
• Hello Fresh
• Glossybox
• Gousto

The benefit of the subscription model, although it requires meticulous management, is that you get guaranteed repeat sales from a customer for as long as they’re subscribed. But it does mean you’re under pressure to make sure they remain a subscriber – possibly whilst also looking for new customers at the same time.
 

How do I choose the right model for my business?

As you will see from some of the main pros and cons covered above, the right structure and model for your ecommerce business comes down to key factors such as:

• How much money you have available to spend upfront: If you have a chunk of cash to spend on launching a physical product, you could benefit from the low costs of wholesale items. If you don’t have a lump sum to invest off the bat, print-on-demand would be a better option, for example. You’ll be able to offset your ecommerce expenses against your tax bill either way, but this determines how healthy your cash flow will look before getting the money in from your clients.
• Do you have storage space?: If you don’t have room to store inventory, then dropship or print-on-demand would be your best options, as these models mean you don’t need to handle or store products.
• Whether you have enough resources to make or develop an original product: If not, opt for private label or white label so you can rebrand existing products to make them your own.
• Whether or not you’re willing to deal with packaging and shipping orders: If not, avoid wholesale and go for dropship or print-on-demand, for example.
• Who you are and who you want to sell to: Are you a business wanting to sell to other businesses? That’s B2B. Are you a consumer wanting to sell to other consumers? That’s C2C.
• Tax rules and overseas selling: The VAT rules around selling across the UK border are quite complicated, but this blog explains them in more detail.

It’s all about finding your niche and where there’s demand.

 
Looking for more expert business support? Check out our accounting support hub for more help, or to ask a tax question.

The post What Business Model is Best for my Ecommerce Business? appeared first on The Cheap Accountants.

In this article we’ll be looking at how UK-based sellers can dropship to domestic and international customers.

Do I need my own website for dropshipping?

Some dropshippers will set up an ecommerce website, but this will often mean you need to spend more time (and money!) making sure customers can find your website and the products on it in the vast expanse of the internet.

Most dropshippers will use an online marketplace such as A popular platform Amazon or Etsy.

Sellers list items and when a sale happens, they then notify a third party who sends the goods onto the buyer. The third-party shipping carrier retains a portion of the sale price, and the seller keeps the rest (minus platform fees).

Will I need to register for tax?

If the total amount of self-employed or miscellaneous income you get in a tax year is more than the £1,000 trading allowance then yes, you’ll need to register with HMRC and start sending tax returns.

The way you register your ecommerce dropshipping business, will affect the way you report your income, and how you pay yourself – so do a bit of research into business structures first!

Domestic versus international dropshipping

Domestic dropshipping usually means that you’re based in the same country as your customers, but there aren’t any rules which say you have to be. You might be in the UK, your customer could be in the US, and the manufacturer fulfilling the order might be based in Spain.

As with all things, there are advantages and potential disadvantages to any arrangement, so we’ll go over a few common points below.

The benefits of international dropshipping

There are many reasons why business owners choose to sell products through the international dropship model, including:

• Lower upfront costs: To launch an online store open to global buyers, dropshipping means you don’t have to invest in stock first or worry about storing and managing inventory. This keeps startup costs down, helps ease common cash flow issues, minimises overheads, and lowers the risks associated with investment.
• Tap into global markets: Thanks to lower setup costs, the dropship business model also makes it easier to access more customers around the world. Some businesses find this can also make it easier to scale further down the line.
• Product diversity: Not having to buy, store and manage inventory means you can afford to be more flexible and experimental with the products you choose to sell. If a product doesn’t sell, you can simply remove it from your listings without worrying about what to do with unsold stock. Customers like to have choice and dropshipping also means you can provide them with trending items, if you like, with far less risk to your business.
• More customers, more sales, more profit: With access to audiences wide and far, lower investment costs and lower overheads, the potential for profit-making can be greater.

International dropshipping considerations

There might be other complications to think about if you’re planning on dropshipping to international customers. Additional transportation and shipping fees will eat into your profits, and customers might well end up waiting longer for delivery. Let’s take a look at some tips and advice to help.

Do some market research

Picking the right products is pivotal to any UK retailer’s success, dropship and non-dropship business models included. As a UK business looking to dropship overseas, your market research should look a little different to those staying domestic.

Demand for particular products and specific market competition can be completely different in another country than here in the UK. So, when selling to an overseas audience, it’s essential to focus your research and analysis on where your target customers are based. You might even decide to test things out on the market first.

Research regulations in your target country

In the same way there might be differences in product demand and competition ovrseas versus the UK, there could also be country-specific regulations that you need to know about.

Customs clearance is a good example, and there will often be extra steps you’ll need to factor in when dropshipping internationally. This might require specific paperwork or packaging formats, for example. It’s well worth checking with your suppliers that they can meet these requirements.

It’s also worth checking there are no restrictions on the types of goods and services you supply. Being legal in the UK doesn’t necessarily mean it’s permitted elsewhere – looking at you Kinder Eggs!

Source suppliers strategically

Any dropship business should invest time in researching suppliers or wholesalers that sell the products they want to provide at a high standard.

Where international dropshipping is concerned, quality product isn’t the only consideration – you also need to research the supplier or wholesale company thoroughly to ensure that they are reputable and reliable when it comes to logistics and legalities.

Poor suppliers will only reflect badly on your business and the products you sell, deterring customers and limiting revenue.

Choose reputable shipping carriers

It goes without saying that in order to dropship to another country from the UK, you will need to research shipping carriers that service your target country(ies).

They also need to be trustworthy too. Your products have a long way to go, and you need to be sure they’re going to make it there, intact, and on time. Read plenty of reviews and do your homework before agreeing to partner with any shipping company.

Keep your customer in mind too – they aren’t going to be best pleased if your delivery times are too long and your shipping costs are too high.

Configure the right payment gateways

The benefits of offering customers multiple ways to pay are well documented. Providing a variety of payment options means you’re less likely to see drop-offs during the checkout process, or to issues processing transactions.

Just double-check the payment gateways you want to provide your customers are viable in the areas you want to sell in.

You work so hard to get customers to reach the checkout – you don’t want to lose them at the last hurdle by not verifying or diversifying your payment options.

 
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The post How Do I Dropship from the UK? appeared first on The Cheap Accountants.

• When you must pay tax on Amazon sales
• The amount of tax sellers pay
• What this means for VAT (including VAT on sales to EU customers)
• How to pay tax on Amazon earnings
• The benefits of hiring a specialist ecommerce accountant

Do I need to pay tax on Amazon sales?

Yes, most business owners need to pay tax on Amazon sales in the same way they would any other earnings.

The good news it that UK sellers are entitled to the £1,000 trading allowance, so you won’t need to register for tax as long as their self-employed income is below the threshold in a tax year. So, if you plan to earn up to your allowance and then stop before you reach it, great! It’s why lots of people decide selling through Amazon is a great side-hustle to start from home.

What important to remember is that this £1,000 threshold applies to the total you get from any self-employed earnings, not just what you sell on Amazon. If you have self-employed income from other sources too, you’ll need to consider the total amount in the year, even if you aren’t earning more than £1,000 a year through Amazon alone.
 

What to do if you earn more than the trading allowance

The very first thing you’ll need to do if you plan to sell goods on Amazon as a business (or if you expect to earn more than the trading allowance) is to register your business with HMRC.

It’s best to get your business registered as soon as possible because the registration route you choose influences how you pay tax on your Amazon earnings.

What kind of business should I register?

The way you set your Amazon business up for tax (known as choosing a legal structure) affects how much you pay, as well as other things like how you tell HMRC about your Amazon sales.

If the plan is to scale your Amazon business quickly into a large operation, registering as a limited company may be your best option. This is because operating as a limited company can be more tax efficient for larger business profits.

Similarly, if you plan to keep your Amazon venture small you might prefer to register as a self-employed sole trader instead. But like all aspects of business, there’s no ‘one size fits all’ solution, and choosing the right kind of business structure depends on your circumstances. In terms of taxation:

• Limited companies submit Company Tax Returns to HMRC, and pay Corporation Tax on their profits. As the director and owner, you’ll also submit a Self Assessment to tell HMRC about your personal income from the business.
• Sole traders file Self Assessment tax returns and pay Income Tax on their earnings.

Each of these tax returns and submissions have their own deadlines and requirements, so it’s so important to get set up properly from the start. Outside of this, it’s also useful to think about the business model you will use – such as dropshipping or using FBA.

How much tax do I need to pay as a UK Amazon seller?

The amount of tax you pay on your Amazon earnings depends on:

• The structure of your business
• How much you earn
• The expenses you can reclaim

As a rough guide, if you register as a limited company the Corporation Tax on profits is currently 19%, and then you’ll pay income tax or dividend tax on any earnings you personally take from the business.

Register as a sole trader and you’ll be paying Income Tax on all the business’s profits, whether you ‘withdraw’ them for personal use or not. The rates span from 20% up to 45%, depending on how much you earn each year.

Allowable expenses can be deducted from your taxable profit to help reduce your tax bill. Some common allowable expenses which typically apply to UK Amazon sellers include (but aren’t limited to):

• Amazon seller fees
• Manufacturing costs
• Marketing and advertising costs
• Business-related travel
• Warehouse rental
• Subscriptions directly related to the running of the business (e.g., Photoshop for editing product images)
• Training
• Costs related to running a home office

There might also be Value Added Tax (VAT) to think about.

VAT rules around UK Amazon sales

VAT registration is not normally compulsory until your VAT taxable turnover in a 12-month period reaches the current £90,000 threshold. Once you reach that point, or if you choose to register for VAT voluntarily, you’ll need to take VAT into account when it comes to paying taxes as an Amazon seller.

It’s worth noting that EU VAT rules mean the marketplace (in this case, Amazon) must register for VAT in the EU. So, if you sell to EU customers, Amazon will automatically collect the VAT on the sale:

Amazon will collect VAT on the sales of goods delivered to B2C customers in the EU, ordered through any Amazon store, where:

• • Goods are delivered from inventory stored outside the EU in a shipment with an intrinsic value of up to €150 – this is referred to as the Import One Stop Shop.
  • Goods of any value are delivered from inventory stored in the EU where you, the seller, are not established in the EU.”

You don’t need to register for VAT yourself, because Amazon will collect it and pay it on your behalf. It’s useful to be prepared for this though because it affects your:

• Pricing, and therefore your appeal to EU customers, because VAT is added on to your sale price
• Your profits, because Amazon will deduct their normal fees, and then the VAT as well

Fortunately, if you are VAT registered then Amazon makes the reporting fairly simple with a monthly report detailing all VAT taxable items, including VAT paid on fulfilment costs and collected from sales. So, remember to tell HMRC about any VAT that you already paid!

How to pay tax on Amazon earnings

When it comes to paying the tax you owe on your Amazon income, no matter what the legal structure of your business, you have a few options:

1. Take on all the bookkeeping and accounting responsibilities yourself, including the submission of tax returns and payment of tax due according to HMRC’s deadlines to avoid penalties.

2. Employ a team or a person in-house to take on the responsibility of bookkeeping and accounting for your Amazon business.

3. Hire an accountant and/or bookkeeper to do it all for you in a timely and accurate manner.

As a small or start-up business, the latter option is often the most sensible choice as it ensures you’re hitting important deadlines, filing the correct information, and taking advantage of as much tax relief as possible to protect your cash flow.

Other benefits of hiring a specialist ecommerce accountant

Matters of tax are a little more nuanced for ecommerce businesses (i.e., those selling on Amazon). There are additional factors you’ll need to take into consideration, outside of standard sales and allowable expenses, such as platform fees and reimbursements.

To make all this easier, we recommend enlisting the expertise of an accountant who will be able to steer and support you. A regular accountant will be able to do this, but our advice would be to seek out an accountant that has experience in the ecommerce sector.

Reasons to hire a specialist ecommerce accountant for an Amazon business include:

• Extensive knowledge of how the platform works and how to generate useful reports from data in Amazon Seller Central.
• Ensuring you meet tax return deadlines and include all the necessary information. Amazon comes with some specific financial details, such as sales fees, which will need to be recorded.
• Advice on where you could be taking advantage of tax relief and allowable expenses to make sure your business is running as tax-efficiently as possible.
• Support with VAT registration (when the time comes) and ongoing VAT compliance.

Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Paying Tax as an Amazon Seller appeared first on The Cheap Accountants.

You get tons more free time

You may have more flexibility in how you use your time but that doesn’t mean you can take time off whenever you want and let everyone else run the business. Being a business owner is a full-time job and more. You’ll always have something to do so don’t count on unlimited holidays.

It’s more stressful than being an employee

This can certainly be true for some people but it doesn’t necessarily apply to everyone.

According to research from AXA Business Insurance, 78% of self-employed people describe themselves as stressed to some extent. While this may seem like a high percentage, it’s not compared to the 90% of people who say the same while working for someone else instead.

The best thing about being in charge is that if a problem is stressing you out, you can do more about it. Gareth Howell, managing director of AXA Direct said:

“I do feel there is something here about how much control an individual feels they have over their destiny. When we asked people about their motivations for starting a business ‘control’ was the word that came up time and again.”

You will make lots of money

You certainly have the potential to earn a lot of money. The great thing about being self-employed is that there’s no real cap to the amount you can earn like there is with a salary. However, it’s going to take a lot of work and even then you’re at the mercy of the market.

Overall, the earnings gap between employees and self-employed people isn’t as dramatic as you might think. The average self-employed person earns around £33,000. That’s £6,000 more than the average employee.

Being self-employed is too risky

There’s an element of uncertainty when you go it alone but this risk can be managed. It all depends on how much work you put in, whether you address the needs of your market and how well you team works.

In many cases, being employed isn’t any safer than being self-employed. Redundancies and cut backs are now common and have become one of the driving forces behind people starting their own ventures.

Having a good product is enough

While this is the first step in any business, finding a good product or service, it’s not the only thing to think about. It doesn’t matter how new and inventive an idea is if there’s no real market for it. If no one wants to buy from you, then you’re going to struggle to keep going. That’s why it’s important to listen to what customers need.

You need a business education

Think only people with MBA’s get ahead? Think again. Plenty of the world’s biggest entrepreneurs got ahead without any higher education. In these cases drive, passion and common sense count more. That doesn’t mean jumping into it without any knowledge or experience is a good idea. The more you can teach yourself about business the better, and experience can teach even more.

You only do work you love

Now that you have the freedom to work how you want, you may think that your time is going to be filled with stuff you love to do. Unfortunately this is just not the case. There are always going to be tasks that aren’t much fun alongside the stuff you enjoy.

This is why it’s important that you’re passionate about your business. Not just because it’s more fun but because when you come to spend time on inevitable tedious or stressful tasks, your passion will keep you going.

You don’t have to answer to anyone

Even if you’re at the top, you still have people to answer to. This could be your employees, your customers, the Government or investors. Businesses are made of people so it’s important to be open to new ideas and advice, especially if you’re just starting out.

You have to do everything yourself

In the early days, being able to wear many hats is a good thing. You’ll often have to take up several responsibilities to get going without forking out for lots of new staff.

However, you have to eventually let go of the reins. When your business grows and you hire people to take over the kind of tasks you didn’t want to be doing long term, you need to let them get on with those jobs. Learn to delegate and give up some control as this will create a more productive office and make your life less stressful.

You have to do all of your accounting

Following on from the previous point, you don’t need to do everything yourself. This means that no one expects you to be hunched over a calculator, working with tons of receipts to work out your tax every year.

Having an accountant can take a huge weight off you as a business owner. It means you can keep your focus on what you’re best at, running your business.

For a quote on accountancy services, you can follow this link here.

Have you heard any other myths you’d add to the list? Have any ever made you had second thoughts about going into business? Let us know your thoughts.

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