Are you an Amazon seller? If so, it is essential to be aware of the tax implications of your trading activities. In this post, we look at the tax rules that apply to individual Amazon sellers acting as sole traders and provide some handy, practical tips to keep you compliant and tax efficient. Whether you’re an Amazon FBA seller or fulfil your own orders, read on to learn more about Amazon seller tax and how to pay your tax bill here.
If you are a newly set up Amazon seller or looking to enter the market, you may have found yourself pondering the following question: “if I sell on Amazon, do I pay UK taxes?” We regularly get asked this question, and the answer is: it depends. If you’re an individual selling on Amazon or a sole trader selling on the platform, you could be liable to pay income tax, like any other form of self-employment, depending on your employment status and earnings. So let’s explore the lay of the land in more detail.
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What Is My Employment Status As An Amazon Seller?
Whether or not you need to pay tax as an Amazon seller, and how much, depends on your employment status in the eyes of HMRC. Your status is a straight choice between making all your revenue through selling on Amazon FBA or topping up your salary with some part-time Amazon trading. If deemed a full-time Amazon seller, you will be taxed as a self-employed worker. However, if you are a hobbyist Amazon seller, you will be taxed as if it is a side gig. If selling abroad in either case, you need to be mindful of VAT registration thresholds in foreign countries, including Europe and make sure you comply with the relevant legislation.
Full-time Amazon FBA Seller
If you are a full-time Amazon FBA seller in the UK, you will pay a minimum of 20% income tax on earnings above £12,570, rising to 40% for earnings over £50,270 and 45% for earnings exceeding £150,000. You must also pay Class 2 and Class 4 National Insurance contributions. So it is vital to keep track of all your invoices, earnings and receipts to pay your annual tax bill yourself using Self Assessment or to hire an accountant to handle things for you.
If your taxable turnover selling through Amazon FBA exceeds £85,000 in any rolling 12-month period, you will also need to become VAT registered. You then have to include VAT in the price of your products and keep records of how much VAT you charge customers and pay on goods. You will then need to file a VAT return to HMRC every three months and will either owe or be owed money, depending on whether you charged more VAT than you paid or vice versa.
From April 2024, if your sales volume exceeds £10,000 in a year you’ll need to be aware of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA). Meaning that all sole traders with income of £10,000 or more per annum will be required to hold all records digitally and submit quarterly sales and costs information directly to HMRC through compliant software.
Part-Time Amazon Seller
If Amazon selling is a part-time gig, and your primary income comes from a separate full-time job, you can potentially earn up to £1,000 of tax-free profits annually. This is thanks to tax relief known as the “Trading Allowance” which means that if your annual gross trading income (i.e. the total amount of income before expenses, not the total amount of profit) is more than £1,000 you can use this tax-free allowance rather than deducting expenses. However, if your profits exceed that threshold, you must register for Self Assessment by 5 October following the end of the tax year in which your trade took place.
You will then need to complete an online tax return and ensure any tax due is paid over to HMRC by the following 31 January at the latest. If your tax liability exceeds £1,000 you will also have to make “Payments on Account”
If you would like any tax due to be collected via your tax code, i.e. through your payslip in your full-time employment, you will need to ensure your tax return is filed before 31 December and request this at the point of submission.
How Do Expenses Work As An Amazon Seller?
If you are a full-time Amazon seller, you can deduct business expenses from your overall profits to lower your tax liability. Applicable expenses include shipping costs, warehouse rental and even your Amazon seller fees to marketing costs, software subscriptions and home office running costs. If you claim the Trading Allowance, you cannot deduct your expenses. However, if your expenses exceed £1,000, you may be better off filing a tax return to claim the losses rather than using the Trading Allowance.
So there you have it, there are UK tax implications for selling on Amazon. If all your earnings come from selling on Amazon and exceed the current Personal Allowance of £12,570, you will need to pay income tax at the applicable rate. However, if Amazon is your side gig, the Trading Allowance means you can earn up to £1,000 of tax-free annual profits that don’t need to be declared. In addition, full-time Amazon sellers can deduct expenses from their profits to lower their tax bill, as can hobbyists with a turnover of more than £1,000 and significant expenses.
Another tax-deductible expense that Amazon sellers can profit from is accountant fees. If the tax rules around selling on Amazon FBA seem daunting, and you would rather not file your Self Assessment, the friendly and knowledgeable team at IN Accountancy can help. We can ensure your Amazon selling business is as profitable and tax-efficient as possible. We will ensure your expenses are properly managed, and your tax returns are filed correctly and on time. As a result, our tailored accounting services practically pay for themselves.
Trust IN Accountancy to make tax less taxing. For more information about the services our accountants for Amazon sellers offer or to book a free consultation, please get in touch on 0161 456 9666 or email firstname.lastname@example.org. Our team will be only too happy to provide you with the advice and support you need to grow your business.