Navigating taxes can be complicated no matter what type of business you’re running, including ecommerce ventures on platforms such as Amazon. Here, we provide clarity around paying tax as a UK Amazon seller, exploring:
- 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 the trading allowance means UK sellers don’t need to register for tax if their self-employed income is less than £1,000 in a tax year. So, if you plan to earn up to your allowance and then stop before you reach it, great!
However, it’s important to remember that this £1,000 threshold is an accumulative amount. So, 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.
Otherwise, the very first thing you’ll need to do if you plan to sell goods on Amazon is to register your business with HM Revenue & Customs (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?
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.
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)
- Some of the 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 £85,000 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:
From July 1, 2021, 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.