Tax Guide for Amazon seller UK

If you are an Amazon seller in the UK, it is essential to understand the tax obligations and how to manage them properly. Below is a comprehensive tax guide for UK-based Amazon sellers:

Income Tax

  • As a self-employed Amazon seller or sole trader, your earnings are subject to income tax. The tax is based on your profits (revenue minus allowable expenses).
  • Self-Assessment: Every year, you will need to complete a Self-Assessment tax return, which includes:
    • Sales income
    • Expenses: Business expenses like Amazon fees, shipping, storage costs, etc.
    • Profit: Your profit is taxed according to the income tax bands.
  • Income Tax Bands:
    • Personal Allowance: £12,570 (tax-free)
    • Basic Rate: 20% on income between £12,571 and £50,270
    • Higher Rate: 40% on income between £50,271 and £150,000
    • Additional Rate: 45% on income over £150,000
  • National Insurance: As a self-employed individual, you’ll also pay Class 2 and Class 4 National Insurance contributions depending on your income.

Business Structure (Sole Trader vs. Limited Company)

  • Sole Trader: Most Amazon sellers operate as sole traders. You are personally responsible for any liabilities and pay taxes through Self-Assessment.
  • Limited Company: If you register your business as a limited company, you will be taxed at corporation tax rates (currently 19%) on company profits. You may also need to pay dividends or salary to yourself as the company director.

Taxable Supplies

Most sales made by Amazon sellers are taxable, but some might be exempt, such as:

  • Selling digital goods: The VAT treatment can differ for digital products like eBooks, downloadable software, etc.
  • Second-Hand Goods: If you are selling used goods, different rules may apply for VAT, including the VAT margin scheme which allows you to pay VAT only on the profit margin rather than the full sale price.

Amazon Fees and Taxation

  • Amazon takes a commission on every sale, which ranges from 7% to 15% (depending on the category). These fees are subject to VAT if you are VAT-registered.
  • Fulfillment by Amazon (FBA) sellers may also have storage and fulfillment fees, which are deductible expenses for tax purposes.

Record-Keeping

Proper record-keeping is crucial. You need to track:

  • Sales invoices and receipts
  • Purchase invoices for goods and services bought
  • Proof of VAT on purchases if applicable
  • Profit and loss statements

Tax Deadlines

  • Self-Assessment Deadline: Paper returns must be filed by 31st October each year, and online returns are due by 31st January.
  • VAT Returns: The deadlines depend on your VAT period and must be submitted online via HMRC.

Tax Avoidance and Compliance

It is important to stay compliant with UK tax laws. Tax avoidance schemes are illegal, and failure to comply can lead to penalties and interest on unpaid tax.

Seeking Professional Advice

Given the complexity of tax laws, it may be beneficial to consult with an accountant or tax professional to ensure you are filing taxes correctly, minimizing tax liabilities, and staying compliant.