Managing the data for your UK eCommerce business can be all-consuming, especially if you have a high volume of transactions, suppliers and customers. It doesn't matter whether your online shop is run through Amazon, eBay, WooCommerce, Etsy or your own website; you can increase your chances of success by keeping on top of your finances.
To claim expenses for your eCommerce business, you must keep detailed records of all business-related purchases, such as inventory, software subscriptions, and shipping costs. These can then be deducted as expenses from your business income when filing your taxes.
Maximising the business expenses you can claim is vital for being tax-efficient and protecting your cash flow. Here's the lowdown on what's tax deductible.
Why should you maximise tax-deductible business expenses?
Including all your allowable expenses on your tax return ensures you'll reduce your tax liability, leaving more money in your business to fund future growth.
How to track and record eCommerce business expenses
Bookkeeping for your eCommerce business needs to be carefully managed. Many eCommerce businesses have a high volume of transactions, so it can be easy to miss expenses you can claim.
This is especially true if you are a self-employed sole trader running your online store transactions through your personal bank account. That's why it's always a good idea to have a dedicated business bank account.
Do I need to provide proof for every expense?
You must keep documentation for all sales and purchases made through your business. While you are not required to submit proof of transactions with your tax return, you should keep the documentation in case the HMRC decide to do an audit. By keeping good records, you can avoid issues with tax inquiries and the potential for penalties of up to £3,000.
Common allowable expenses for eCommerce businesses
You'll be glad to hear there are many tax-deductible expenses, whether you operate as a sole trader or limited company, meaning you keep more of your hard-earned profits.
Allowable business expenses for eCommerce businesses
Here are some of the common expenses an eCommerce business can incur that are eligible for tax deductions:
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Staff costs, such as a virtual assistant or marketing and sales support. These could be payroll employees or freelance contractor costs.
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Software subscriptions for software to manage your business, such as a CRM, cloud accounting or email marketing tools. Other website costs, such as internet bills, hosting fees, domain registration and ongoing maintenance, are included as allowable expenses.
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Business insurance, such as product and public liability insurance and legal fees to ensure your company is fully protected.
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Accountancy fees to keep your business finances in order. Bank fees and loan interest paid can also be included as tax deductible. You can also deduct expenses for other professional services such as HR or marketing consultancy.
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Hotels, travel expenses, subsistence and mileage for business trips and company vehicle running costs (when used for business activities).
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Marketing costs, such as online ads, social media campaigns, influencer collaborations, and promotional materials.
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Delivery costs are a big part of the eCommerce model, so it's essential to include them as tax deductibles. Transport costs could include couriers, haulage, or Royal Mail delivery charges.
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Business premises costs are tax deductible and include cleaning, utilities, security, maintenance, buildings/contents insurance, and other office running costs. You may also include office costs for equipment such as printers, photocopiers, office furniture and other machinery used in your business. Significant purchases might fall under capital spend, though, so check with your accountant.
Can I claim home office expenses if I run my eCommerce business from home?
Yes, if you run your eCommerce business from home, you can claim home office expenses. The easiest way to do this is to claim the flat rate allowance for home-working, which is currently £26 per month. You should check out the different tiers of this allowance depending on how many hours you work each month.
Alternatively, you can claim a proportion of your utilities and other home-related costs (apart from mortgage interest or rent payments). A comprehensive guide to home office expenses is available on the government website.
Aside from utilities, you can claim all your business office supplies, such as paper, ink, envelopes and postage, that are wholly and necessarily for business purposes. Additionally, you can also claim broadband internet costs and landline and mobile phone costs for business use. You'll need to work out the business proportion, as you can't claim costs that aren't business expenses.
If you decide to use a co-working space instead of working from home, the monthly cost of the space is an allowable business expense.
What expenses can't eCommerce businesses claim?
There are several expenses which are not eligible for tax deductions. These include:
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Client entertaining costs.
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Travel expenses or mileage allowance incurred for commuting to and from your usual place of work.
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Personal mobile phone bill.
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Customer/client gifts unless they are under £50 and include your company branding.
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Fines and penalties such as speeding tickets or HMRC fines.
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Asset depreciation.
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Shareholder Dividends.
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Capital asset improvements.
Can I claim expenses for unsold inventory?
Your inventory or stock cost is part of your current assets on your balance sheet, which means it is not considered an expense that should be deducted from your taxable profits. Once the stock is sold, it will be accounted for in your profit and loss account.
However, if you have stock that has to be written off as obsolete, lost or stolen, you can write those extra costs to your profit and loss account to reduce your taxable profits.
How to claim expenses for your eCommerce business
To claim business expenses, you must keep detailed records of all your business transactions. Disciplined bookkeeping is an absolute must to ensure that you don't miss any allowable expenses. It’s important to have a separate business bank account to make tracking your spending easier and avoid mixing it with personal expenses.
Organise your expenses into clear categories, like marketing, software subscriptions, delivery costs, or office supplies, so everything’s easy to manage. Make sure you’re only claiming costs that are 100% for your business. If you’re unsure about anything, an accountant can be a huge help in showing you what’s deductible and making sure your tax return is spot on.
Sole traders
If you’re a sole trader, claim expenses by recording all business-related costs and including them in your self-assessment tax return. Deduct these expenses from your income to calculate taxable profit, ensuring you keep receipts and documentation in case of an HMRC audit.
Limited companies
For limited companies, expenses are claimed through the company’s accounts. You can also submit claims for personal costs incurred on behalf of the business, which the company can reimburse. These expenses reduce the company’s taxable profit when calculating Corporation Tax. Accurate records are essential, and consulting an accountant can help ensure compliance.
When should I seek professional advice?
If you aren't sure if you can claim business expenses, it's important to ask your accountant for guidance on the current tax rules, as it could save you a significant amount on your tax return.
Tax relief can vary depending on whether you are a sole trader or a limited company and the business-related costs you incur.
Tax regulations can change each year, so it's wise to keep up to date by having regular contact with your business finance advisor or accountant.
Seek advice early in the tax year so your accountant can help make your business as tax-efficient as possible. There's no point waiting until your self-assessment tax return is due because, by then, it's too late to do anything to reduce your tax liability.
Speak to Unicorn Accountants today
Unicorn Accountants specialises in supporting self-employed and limited company eCommerce entrepreneurs to correctly identify all expenses incurred for business purposes and claim deductions to reduce your tax bill. After all, no one wants to pay more than they need to.
Speak to our team of expert accountants today on 0208 064 0454 or book a short call to discuss your needs.
Frequently asked questions - how to claim expenses for eCommerce businesses
Can you claim a website as a business expense?
You can generally claim costs related to your website, including domain registration, hosting fees, website design, SEO services, maintenance, and any subscriptions for tools or plugins essential for running the site.
Are packaging materials for shipping orders tax-deductible?
Any materials used to package and ship your products, such as boxes, tape, labels, and protective wrapping, can be claimed as business expenses.