Why online selling gets messy in the books
A marketplace payout is not the same as a sale. Amazon or eBay take their fees, delivery charges, advertising costs, refunds and sometimes VAT before money reaches your bank. Shopify payments arrive in batches, often days after the order. Etsy adds listing fees and its own advertising. If you simply record what lands in your account, your sales look smaller than they really are and your costs disappear.
We rebuild the full picture from the platform reports. Gross sales go in as income. Fees, postage, packaging, ad spend and returns go in as costs. That gives an accurate profit figure and a clear view of which channels actually make you money.
The digital platform reporting rules
Since 1/1/2024, online platforms operating in the UK have had to collect details about their sellers and report them to HMRC once a year. This includes marketplaces such as Amazon, eBay, Etsy and Vinted, and also platforms for services and holiday lets. The report covers who you are and how much you were paid. Sellers of goods are left out if they make fewer than 30 sales and receive 2,000 euros or less in the year.
These rules do not create a new tax. They do mean HMRC can compare platform data against your self assessment or company return. If someone is clearly trading, buying stock to resell or making items to sell, the profit is taxable whether or not a platform reported it. Selling off your own unwanted belongings is usually different and is not trading income.
If you have been selling for a while and never declared it, we can help you put things right with HMRC through a voluntary disclosure. Coming forward first is almost always better than waiting for a letter.
What is included
- Annual accounts built from platform reports
- Self assessment or company tax returns
- Stock valuation at the year end
- VAT registration and quarterly VAT returns
- Import VAT and postponed VAT accounting
- Cloud software setup with shop and payment integrations
- Voluntary disclosure for past undeclared sales
- Profit by product or channel reporting
Stock, cost of sales and margins
Most online sellers hold stock, and stock changes the profit figure. If you buy a large order of goods shortly before your year end and only sell half of it, you cannot treat the whole purchase as a cost for that year under the accruals method. The unsold stock is valued and carried forward. We help you count and value it properly, including stock held in Amazon warehouses.
We also look at landed cost. Goods bought from overseas suppliers carry shipping, import duty and import VAT on top of the invoice price. Knowing the true cost of each unit tells you whether a product is worth selling at all.
VAT for online sellers
Once your taxable turnover passes £90,000 in any rolling 12 month period, you must register for VAT. For online sellers, turnover means total sales, not what is left after marketplace fees. A seller with modest profits can cross the line quickly.
There are some rules specific to online selling. When an overseas seller sells goods already in the UK through a marketplace, the marketplace is usually responsible for the VAT, not the seller. Selling to customers in the EU brings its own registration questions. Import VAT on goods coming into the UK can often be reclaimed through postponed VAT accounting if you are registered. We explain which rules apply to your setup and handle your VAT returns under Making Tax Digital.
- Monitoring your rolling 12 month turnover
- Postponed VAT accounting on imports
- VAT on marketplace and advertising fees
- Selling to customers outside the UK
Sole trader or limited company for an online shop
Plenty of sellers start on Etsy or eBay as a hobby and grow from there. A sole trader setup is simple and cheap to run. As profits rise, a limited company can be more tax efficient, especially if you want to leave money in the business to buy more stock. A company also keeps business debts separate from your personal finances, which matters if you hold a lot of inventory or sign supplier contracts.
We compare both options using your actual numbers. If a company makes sense, we can set it up and move your seller accounts across in the right order.
Software that talks to your shop
Cloud accounting software can pull data straight from Shopify, Amazon and payment providers such as PayPal and Stripe. Set up well, it saves hours each month. Set up badly, it double counts sales or treats payouts as income. We connect your channels correctly and check the results each quarter.
Many of our ecommerce clients run their businesses from home in Fulham, Parsons Green and Wandsworth, with stock in a spare room, a lock up or a fulfilment centre. Everything can be handled online.
Who this suits
- Shopify store owners selling their own brand
- Amazon FBA and marketplace sellers
- Etsy makers and craft sellers
- eBay and Vinted resellers who buy to sell
- Online sellers close to the VAT threshold
- Sellers worried about platform data reported to HMRC
Common questions
Does Etsy or eBay tell HMRC what I sell?
Yes, under the digital platform reporting rules, UK platforms report seller details and earnings to HMRC each year. Sellers of goods are excluded if they make fewer than 30 sales and receive 2,000 euros or less. Being reported does not mean you owe tax, but HMRC may compare it with your return.
Do I pay tax on selling my old things online?
Selling your own personal belongings, such as old clothes or furniture, is not usually trading, so there is normally no income tax to pay. It becomes trading when you buy items to resell or make things to sell for profit. We can help you work out which side of the line you are on.
When does an online seller need to register for VAT?
You must register when your taxable turnover goes over £90,000 in any rolling 12 month period, or if you expect your sales in the next 30 days alone to go over that figure. Turnover is your total sales, before marketplace fees are taken off. Some overseas sellers have to register whatever their turnover.
How do I record Amazon payouts in my accounts?
Record the gross sales as income and the fees, refunds and advertising as separate costs, rather than just the net payout. Amazon settlement reports give this detail. Good accounting software can import them, but the setup needs checking.
Can I claim the cost of stock I have not sold yet?
Under the cash basis you generally claim stock when you pay for it. Under the accruals method unsold stock at the year end is carried forward and claimed when sold. We advise which method suits your business.
Should my online shop be a limited company?
It depends on your profit, whether you reinvest in stock and how much risk you carry. A company can save tax once profits are steady, but it adds admin and costs. We compare both using your figures before you decide.
I have sold online for years without telling HMRC. What should I do?
Speak to an accountant before HMRC contacts you. We can work out what is owed and make a voluntary disclosure, which usually leads to lower penalties than if HMRC finds the income first.