Selling on Amazon FBA is a pathway to global commerce, yet this success comes hand in hand with intricate tax and compliance obligations in the UK. This complexity increases manifold with cross-border sales, inventory management, and specific rules set by HMRC.
This step-by-step guide breaks down the core tax implications for UK-based Amazon sellers, focusing on compliance without needing specialist integration software.
1. Income Tax and Business Structure
Every Amazon seller in the UK has to be registered with HMRC and pay tax on their profit. The type of tax depends completely on your chosen business structure: Sole Trader or Limited Company.
Sole Trader (Self-Employed)
Tax: You pay Income Tax and NICs on your net profit, which is Revenue less Allowable Expenses.
Filing: You must register for Self Assessment by 5 October following the end of the tax year and file a tax return by 31 January.
KeyAction: You need to download and accurately summarise your monthly Amazon Settlement Reports to calculate your true income, deducting all fees and costs.
Limited Company
Tax: The company pays Corporation Tax on its profits. The directors/owners then pay personal taxes: Income Tax/NICs on salary and Dividend Tax on dividends.
Filing: The company has to file the annual statutory accounts with Companies House and a Corporation Tax return (CT600) with HMRC.
Key Action: This structure offers Limited Liability, and is more tax-efficient as profits grow, but it does require more formal administration and compliance.
2. The VAT Maze: UK and International Rules
Value Added Tax is one of the most common pitfalls for Amazon sellers, mainly due to international sales and keeping inventory.
UK VAT Registration Threshold
Mandatory Registration:: You are obliged to register for UK VAT when your taxable turnover for a 12-month rolling period exceeds £90,000 above the threshold.
Voluntary registration: Many sellers want to register early to recover Input VAT, which is the VAT paid on business expenses, mainly imported goods and Amazon fees.
Making Tax Digital (MTD): Once VAT is registered, you must maintain your digital records and submit your VAT return digitally via MTD compatible accounting software, such as Xero or QuickBooks.
Amazon's Role as "Deemed Supplier”
On certain low-value imports to the UK, Amazon is considered the "Deemed Supplier" and will charge and remit the UK VAT. You, however, as the seller, must also make sure you understand which sales this applies to, ensuring that you do not collect VAT that you should not.
International VAT (Post-Brexit)
Inventory Abroad (Pan-EU FBA): If you are on the Amazon Pan-European FBA program, and your stock is held in EU countries such as Germany and France, you're creating a VAT Nexus there. That means you are mandatorily required to register for VAT in each EU country where your inventory is held, regardless of your sales volume. It's just a strict rule.
Selling to EU Customers: To simplify reporting for sales from the UK to EU consumers, you may utilize the One Stop Shop scheme, whereby a single VAT return is submitted for all eligible EU sales-instead of having to register in each EU country, except where you store inventory.
3. Cost of Goods Sold & Expenses
To work out your actual profit, you need to correctly ascertain your COGS and subtract all the permissible expenses. HMRC doesn't tax you on your total sales but on your profit.
Calculating COGS
The COGS for FBA sellers is the Landed Cost of the product and must include:
The product unit cost paid to the supplier.
Freight and shipping costs from the supplier to the UK/EU.
Customs Duties paid on import.
Any Import VAT not recoverable (if you are not registered for VAT or have not used Postponed VAT Accounting).
Allowable Expenses
You can deduct any cost incurred wholly and exclusively for your Amazon business to reduce your taxable profit.
A portion of utility bills or the fixed monthly simplified allowance for working from home.
Inventory Valuation Method
You will need to adopt an inventory valuation method (normally FIFO or Weighted Average) and use the method consistently for tax reporting so that the inventory value at the close of the taxable year is accurately reflected on your balance sheet.
4. Record Keeping and Compliance Tips
HMRC now receives sales data directly from marketplaces such as Amazon, making accurate record-keeping more critical than ever.
H3: Separate Finances: Maintain a separate business bank account. Do not intermingle personal and business transactions.
H3: Download Reports: Download the Amazon Settlement Reports on a regular basis, every time, from Seller Central > Reports > Payments, and Fee Invoices. These reports contain all of your reconciliation data.
H3: Invoice Trail: Retain all Purchase Invoices, shipping bills, and customs documentation (C88/import declarations) to support the value of your inventory and recover import VAT if registered.
H3: Set Aside Tax: Again, this is a separate savings pot, into which you transfer a percentage of your monthly profit, so money is available for quarterly VAT payments and your annual Income/Corporation Tax bill.
Clarity Amidst the Complexity
Selling on Amazon offers incredible opportunities, but as we have outlined, the administrative burden of VAT, COGS, and income tax can quickly feel overwhelming. However, compliance doesn't have to be a barrier to your success. By choosing the right business structure early and maintaining a rigorous digital paper trail of your settlement reports and invoices, you can neutralise the stress of tax season. Remember, the goal isn't just to pay what you owe, but to ensure you aren't overpaying due to poor record-keeping.
Ready to simplify your FBA accounting?
If you want to focus on sourcing products rather than wrestling with spreadsheets, we are here to help. Get in touch with us to discuss a tax strategy tailored specifically for Amazon sellers.
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