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Selling on Amazon can be a great way to make money on your own terms and find freedom from the 9-5, but it's important to understand the financial and tax side of things.
As an Amazon seller in the UK, you'll need to deal with taxes. This guide will help you understand the different taxes you'll need to pay and how to stay on top of your financial obligations.
Key Tax Tax Considerations for UK Amazon Sellers:
- VAT (Value-Added Tax): If your annual turnover exceeds the VAT threshold (currently £90,000), you'll need to register for VAT and charge it to your customers.
- Income Tax and National Insurance Contributions (NICs): As a self-employed individual, you'll need to pay income tax and NICs on your profits.
- Corporation Tax: If you operate as a limited company, you'll need to pay corporation tax on your company's profits.
- Record-Keeping: Keeping accurate records of your income, expenses, and VAT is essential for tax compliance.
- Professional Advice: Consider consulting with a tax advisor or accountant to ensure you're complying with all tax regulations.
- Registering as a Business: You'll need to choose a business structure, and register with HMRC
Warning: It’s very easy to put tax and accounting on the back burner, especially when you start your Amazon business. But failing to comply with tax regulations can lead to significant penalties, fines, and even legal action.
As the saying goes, ‘’the Taxman always gets his due’’, and if you don’t adhere to the demands of HMRC, rest assured you’ll find out how true it is...
Understanding VAT
VAT (Value-Added Tax) is a consumption tax added to most goods and services sold in the UK. As an Amazon seller, you'll likely need to charge and collect VAT from your customers.
VAT Registration Threshold
The current VAT registration threshold in the UK is £90,000. If your annual turnover exceeds this threshold, you must register for VAT.
Charging and Collecting VAT
When you sell goods or services on Amazon, you'll generally need to charge VAT to your UK customers. The VAT rate is currently 20%. You'll collect VAT from your customers and remit it to HMRC.
VAT Returns and Payments
You'll need to file VAT returns with HMRC and pay any VAT due. The frequency of VAT returns depends on your turnover. Generally, businesses with a turnover below £1.35 million must file quarterly returns. Larger businesses may need to file monthly returns.
Additional Notes:
- If you sell goods from outside the UK, you may need to consider import VAT and customs duties.
- If you're registered for VAT, you can often reclaim VAT on eligible business expenses.
- For more detailed information on VAT, you can visit the HMRC website or consult with a tax advisor.
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Income Tax for Amazon Sellers
As an Amazon seller, your profits are generally considered your personal income. This means you'll need to pay income tax on your earnings.
Self-Assessment
You'll need to complete a self-assessment tax return to declare your income and calculate your tax liability. The deadline for submitting your self-assessment tax return is usually 31 January of the following tax year.
Allowable Expenses
You can deduct certain expenses from your income when calculating your tax liability. This includes business expenses such as:
- Shipping costs
- Amazon seller fees
- Office supplies
- Advertising costs
- Travel expenses related to your business
For more information on your allowance expenses, be sure to check out our dedicated Sole Trader and Limited Company expense articles.
Tax Rates
Income tax rates in the UK are progressive, meaning you pay a higher rate of tax on higher income levels. The current income tax rates are as follows:
Please note that income tax bands are different if you live in Scotland. You can find the current tax rates on the HMRC website.
Corporation Tax (For Limited Companies)
If you operate your Amazon selling business as a limited company, you'll need to pay corporation tax on your company's profits. Corporation tax is a separate tax from income tax.
Corporation Tax Rates
The rate of Corporation Tax you pay depends on how much profit your company makes. The current ‘main’ corporation tax rate in the UK is 25%. This is for companies with profits over £250,000. However, there are certain reliefs and allowances available that can reduce your corporation tax liability.
Filing Corporation Tax Returns
You'll need to file a corporation tax return with HMRC. The deadline for filing your corporation tax return depends on your company's accounting period. Generally, it's 12 months after the end of your accounting period.
Additional Notes:
- If your company has a group structure, there may be additional corporation tax rules that apply.
- You may be eligible for certain reliefs and allowances that can reduce your corporation tax liability, such as the small profits rate or research and development tax relief.
Other Tax Considerations
Import Duties and Customs
If you import goods from outside the UK to sell on Amazon, you may be subject to import duties and customs taxes. The specific rates and procedures will depend on the country of origin and the nature of the goods. It's essential to research the relevant import regulations and customs procedures to ensure compliance.
Digital Services Tax (DST)
The Digital Services Tax (DST) is a tax levied on certain UK revenues of large multinational companies that provide online advertising services. While it primarily affects tech giants, it could indirectly impact Amazon sellers if they use advertising services provided by these companies.
National Insurance Contributions (NICs)
As a self-employed Amazon seller, you'll likely need to pay National Insurance Contributions (NICs). NICs are usually calculated based on your yearly profits.
If you're a director of a limited company, you'll also be subject to Class 1 NICs, which are typically deducted from your salary. However, the specific rules can be complex and depend on your role and the company's circumstances.
Note: The tax landscape can change, so it's always advisable to consult with a tax professional for the most up-to-date information and guidance.
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Charting the Amazon’s Tax Rules
Getting to grips with the Amazon seller tax rules outlined in this guide will help you to stay compliant, avoid penalties, and focus on growing your Amazon business.
Remember to:
- Stay organised - Maintain accurate records of your income, expenses, and VAT.
- Seek professional advice - Consult with a tax advisor or accountant for personalised guidance.
- Stay updated - Tax laws can change, so stay informed about any updates or modifications.
Doing all the above will make for plain and profitable sailing through the waterways of ecommerce.
Don't want to face ecommerce tax solo?
Don't worry, you don't have to! We offer a specialised ecommerce accounting option for sellers just like you. So whether you're just starting out as an ecommerce business or are a pro, we've got you covered.
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