Running an ecommerce business can be incredibly rewarding, but it also comes with its fair share of financial responsibilities, particularly when it comes to taxes. 

Fortunately, there are several strategies you can employ to help reduce your tax bill. Here are five practical ways to keep more of your hard-earned money in your pocket.

1. Understand your allowable expenses

One of the simplest ways to lower your tax bill is to ensure you’re claiming all your allowable expenses. In the world of ecommerce, these might include:

• Website costs: Hosting fees, domain registrations, and any software subscriptions necessary for running your online store.
• Marketing expenses: This includes social media advertising, email marketing services, and even influencer partnerships.
• Shipping costs: Don’t forget to factor in packaging, postage, and courier services.
• Inventory purchases: The cost of inventory becomes an expense when the product is sold. 

Make sure to keep meticulous records of all these expenditures. Not only will this simplify your tax return process, but it could also uncover deductions you might have overlooked.

If you aren’t sure what allowable expenses you can claim, you should check out our dedicated sole trader expenses and Limited company expense guides. 

{{ecommerce-guide}}

2. Take advantage of the Annual Investment Allowance

If your business needs equipment or machinery, you might benefit from the Annual Investment Allowance (AIA). This allows you to deduct the full value of qualifying items from your profits before tax. Eligible items can include computers, office furniture, and even certain software. 

The AIA amount is currently £1 million, however, this has changed several times since April 2008, so it’s best to check with your accountant or HMRC on what you can claim. 

Investing in assets that can enhance your business operations not only improves efficiency but can also lead to significant tax savings.

3. Consider incorporating your business

If you’re currently a sole trader, incorporation might be worth considering. Limited companies pay Corporation Tax on their profits which can often be lower than the income tax rates sole traders pay. 

While there are additional responsibilities and paperwork involved in running a limited company, the potential savings can be substantial.

You’ll also have the flexibility to pay yourself through dividends, which are often taxed at a lower rate than salary income. However, it’s essential to consult with an accountant to weigh the pros and cons based on your unique circumstances before you change from a sole trader to a limited company.

4. Utilise tax reliefs and incentives

The UK government offers various tax reliefs and incentives aimed at supporting small businesses. Familiarising yourself with these can yield significant savings. Some key ones to consider include:

• Research and Development (R&D) tax credits: If you’re developing new products or improving existing ones, you could qualify for R&D tax relief, which can give back a sizable chunk of your investment.
• Small Business Rate Relief: If you’re operating from a commercial property, check if you qualify for small business rate relief, which could reduce your business rates liability.

Keep an eye on announcements from HMRC for any new initiatives that may apply to your business.

5. Invest in professional advice

While it might seem counterintuitive to spend money to save money, investing in a good ecommerce accountant can be one of the most beneficial decisions you make. An accountant who understands the intricacies of ecommerce can help you navigate the complexities of tax laws, identify deductions you may not have considered, and ensure you’re compliant with all regulations.

{{cta-ecommerce-calendly}}

Ready to reduce your tax bill as an Ecommerce business?

Reducing your tax bill as a small ecommerce business is not just about savvy bookkeeping; it’s about making informed decisions that can have a lasting impact on the financial health of your business. 

At Crunch, we have in-house specialist ecommerce accountants. This means that we can offer tailored ecommerce accounting solutions to help you understand the complexities of tax regulations (like Amazon seller tax rules) while maximising your deductions. 

With our expert guidance, you can focus on scaling your business with the peace of mind that your accounting is in capable hands. Interested? You can book a free consultation with our advisors who will talk you through how we can help.

Book a call

‍