Selling on Amazon is an excellent way to make additional income or even start a small business. However, as soon as your Amazon business starts generating a sustainable income, then you may need to pay tax.
Income tax starts at £12,570 in the UK. If you are a self-employed Amazon seller earning over this threshold, you must file a Self Assessment Tax Return. Staying tax informed and consulting with a professional accountant can help reduce the tax you need to pay and save money!
If you’re curious about navigating the rules and regulations around tax liability as an Amazon seller in the UK, then keep reading.
When would an Amazon seller have to submit a tax return?
As a self-employed Amazon seller, you must submit a tax return once you make an income from selling on Amazon. The tax rate starts at 20% but will vary depending on how much you earn through your business.
While this information may sound daunting, especially if you are new to self-employment, it is actually more straightforward than people realise. GOV.uk has a beneficial tool to check if you need to send a tax return, which can help you determine if you should pay tax for selling on Amazon.
If you do find yourself needing to register for self-assessment, then you will need to do so before 5th October for that tax year. You will then have until 31st January of the following year to complete your tax return. At WIS Accountancy, we are a team of dedicated accountants who help eCommerce businesses with their accounting.
If you’re looking for professional guidance to support you with your next self-assessment tax return, then contact us today at 0203 011 1898.
How is income tax calculated for Amazon sellers?
Figuring out how your income tax is calculated as an Amazon seller will depend on your current employment status.
You will need to take into account whether your Amazon business is a full-time income source or a secondary income from your everyday job. You will then need to calculate how much profit you are making in either instance.
Full-time Amazon seller
If your Amazon business is a full-time income stream, then you will be classed as self-employed. You will be taxed according to the income tax threshold, which starts at £12,570 per tax year. Here is a tax guide to how much you will need to pay depending on your profits.
Below are the thresholds if you live in England. Scotland’s tax rates differ:
- Under £12,570 = 0%
- 12,571 – £50,270 = 20%
- £50,271 – £125,140 = 40%
- £125,140+ = 45%
Part-time Amazon seller
If you are already in full-time employment and your Amazon sales make up part of a side income, then your income tax may vary depending on how much you earn from your full-time job.
Did you know that you have the opportunity to earn up to £1,000 tax-free? This benefit is known as the Trading Allowance. However, once your profits exceed the £1,000 threshold, you will need to declare it to HMRC and file a self-assessment tax return.
What are allowable Amazon seller expenses?
When working out your self-assessment tax returns as a sole trader, you’ll be happy to know that you can reduce the impact of your tax return and pay less money by deducting allowable expenses.
These are the various costs incurred during the tax year which pay towards the running and management of your business.
Amazon sellers are entitled to many of the usual allowable expenses as other self-employed businesses, which can include:
- Shipping costs
- Seller fees
- Marketing materials, photography and advertisement
- Business travel costs
- Service fees (such as accountancy fees or legal fees)
Essentially, you can deduct anything that is a genuine business expense. So, to ensure you are the most tax-efficient you can be, you should keep track of all your business expenses.
How should you keep records as an Amazon seller?
Keeping records of your business expenses and earnings will help simplify the process of filing a self-assessment tax return. You can choose to keep records in whichever way suits you, whether that’s through hard copies of receipts and invoices or using a specialist accounting software to scan them in digitally.
As we shift to a more digital world, more and more sole traders are utilising apps and software (also known as fintech) to help with their bookkeeping and accounting needs.
We are also gearing closer to the government initiative, Making Tax Digital, which is in place to encourage people to maintain records digitally. So, whether you choose to keep your Amazon business records digitally or not, it’s important to prepare for the impacts of this initiative.
When does VAT apply to your Amazon goods and services?
VAT (also known as Value Added Tax) is a tax added to most goods and services sold by VAT-registered companies. If your taxable turnover is more than £85,000 during a 12-month period, then you will need to register your Amazon business for VAT.
As a VAT-registered Amazon seller, you will need to apply VAT to all of your products listed on Amazon. You will also need to keep records of how much VAT you pay on business expenses, settle any VAT you owe to HMRC, and submit a VAT return.
How can WIS Accountancy help me?
If you want to grow your business as a self-employed Amazon seller, then check out our personalised eCommerce Accountant service. With our honest advice and ongoing support, you will benefit from better tax savings on your next self-assessment.
However, we don’t just offer tax services for Amazon sellers. Our expert accountants can also help you with various aspects of your self-employment journey – including assisting you in transitioning from a sole trader to a limited company, providing support with cash flow management, and helping your company grow.
Do you still have questions about how tax works for Amazon sellers? Then contact WIS today and see what we can do to help you with your next tax return.
Frequently asked questions about tax for Amazon sellers
Do I need to charge VAT on Amazon sales outside the UK?
If you export products outside of the UK, then you would not typically need to charge VAT on those sales. You will still need to keep all receipts and records of any goods sold outside of the UK and comply with all other rules and regulations.
When should an Amazon seller register as a sole trader?
If you are building a business as a self-employed Amazon seller, then you are technically classed as a sole trader. You will be required to register as a sole trader to HMRC as soon as you begin to earn money from selling on Amazon.
If you are already registered as a sole trader and want to know when to change to a limited company, then read our blog for more information.
What is the difference between an Amazon FBA business and an Amazon seller?
Amazon FBA (also known as Fulfilment by Amazon) is a service set up by Amazon to provide eCommerce businesses with the ability to outsource their order fulfilment to Amazon. Essentially, this means that Amazon will deal with the packing, shipping and customer service of your product.
This is different from independent Amazon sellers, as they will need to store, package and ship their own products, as well as handle any customer service demands.
If I am an Amazon affiliate, does tax apply to me too?
If you profit as an Amazon affiliate, then tax will apply to you in the same way as any other self-employed income source. However, as with any other business selling products on Amazon, the amount you will need to pay will vary depending on how much you make in the tax year.