Launching your Amazon FBA business is an exciting venture with fantastic potential for growth and success. But as your sales start rolling in, you'll need to tackle one inevitable question: what are the tax obligations for UK Amazon sellers?
Thriving on Amazon *FBA but unsure about UK taxes? Many sellers miss crucial tax savings or risk HMRC penalties. With proper planning, you could reduce your tax liability while staying fully compliant.
Read on for a helpful guide on Amazon FBA tax and discover how to keep more of what you earn.
What taxes will you pay as an Amazon FBA seller?
Selling on Amazon comes with specific tax responsibilities that vary depending on your business structure, turnover, and profits. Getting these right from the start can save you significant headaches (and potentially money) down the line.
As a self-employed Amazon seller, you're responsible for calculating and paying your own taxes – unlike workers in full-time employment who have tax automatically deducted through PAYE. This gives you more control but also means you need to stay on top of your tax affairs.
Income tax
Everyone selling on Amazon needs to pay tax on their profits, regardless of their employment status. But don't panic – you only pay tax on your profits after deducting your legitimate expenses and applicable allowances. The good news is that every taxpayer in the UK has a personal tax-free allowance (currently £12,570 for the 2024/25 tax year).
If you are a sole trader, you can use the £1000 trading allowance to reduce your tax bill. However, as your online business grows and generates more substantial income, you'll need to register for self-assessment and file an online tax return each year to declare your earnings.
Corporation tax (limited companies)
Have you structured your Amazon selling business as a limited company rather than operating as a sole trader? If so, instead of income tax, you'll pay corporation tax on the company's profits.
The current corporation tax rate for UK businesses stands at 25% for companies with profits over £250,000, with a reduced rate of 19% for businesses with profits under £50,000. For profits between these thresholds, there's a tapered rate – meaning your tax rate gradually increases with your profits.
VAT
Value Added Tax (VAT) is another important consideration for your Amazon-based business. If your taxable turnover exceeds the VAT threshold (currently £90,000 for the 2024/25 tax year), you must register for VAT, charge VAT on your products, and complete regular VAT returns.
Even if you're below the £90K threshold, you might choose to register voluntarily and collect VAT. Why? Because it allows you to reclaim VAT on your business expenses and can make your business appear more established when dealing with VAT-registered businesses.
Brexit has created additional VAT and tax implications for UK sellers trading internationally. You may need to register for VAT in countries where you store inventory, sell goods or exceed local sales thresholds. VAT accounting can be complex, so it's a good idea to seek professional advice.
National Insurance Contributions (NICs)
Self-employed workers must pay National Insurance Contributions (NICs) through the income tax system. These contributions ensure you maintain entitlement to important state benefits and your pension.
Self-employed Amazon business owners typically pay two types of NICs:
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Class 2 NICs: A flat weekly rate if your profits exceed the small profits threshold
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Class 4 NICs: A percentage of your profits above a certain amount
How to manage your business taxes on Amazon
Keep accurate records
Maintaining detailed records of your Amazon seller fees, inventory costs, and all other business expenses isn't just good practice – it's essential for accurate tax reporting.
Strong record-keeping will help you:
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Understand how much profit you are making from each product
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Calculate your profits correctly, ensuring you don't overpay your tax bill
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Support your figures if HMRC ever conducts an investigation
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Identify opportunities for savings to boost your bottom line
Consider using cloud accounting software that integrates with your Amazon seller account to streamline this process.
Claiming expenses
Every pound of allowable expenses you claim reduces your taxable profit by the same amount so you can be as tax-efficient as possible.
Allowable expenses for Amazon sellers typically include:
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Amazon seller fees and subscription costs
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Inventory and stock purchases
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Shipping and packaging materials
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Storage fees
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Marketing and advertising costs
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Website hosting and domain fees
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Photo editing software and other subscriptions
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Office supplies and equipment
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Professional services such as accounting fees
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Travel costs
By correctly claiming these expenses, you can get tax relief, significantly reduce your tax liability, and keep more of your hard-earned money to reinvest in growing your business.
Pay income tax via self-assessment tax return
If you're new to the world of self-employment, you'll need to register for self-assessment with HMRC as soon as possible after starting your business. The tax year runs from 6 April to 5 April with your self-assessment tax return due by 31 January following the end of the tax year. Don't wait until the deadline approaches – register early to avoid potential penalties and give yourself plenty of time to prepare your financial information. You can use HMRC's self-employed tax calculator to estimate your tax bill.
Looking for tax help? Contact Unicorn Accountants
Our team of expert accountants understands the unique challenges faced by Amazon sellers and can help you structure your business for maximum tax efficiency. Contact us today on 020 8064 0454 for a friendly, no-obligation chat about how we can help you save money, become more tax-efficient and grow your small business confidently.
Frequently asked questions about Amazon FBA seller taxes
Do I need to register with HMRC if I sell on Amazon?
Yes, if you're selling on Amazon as a business rather than just occasionally selling personal items, you'll need to register with HMRC as self-employed. The good news is that you have until 5 October after the end of the tax year in which you began trading to register, though we recommend doing it sooner rather than later.
Do I need to pay Amazon seller tax if it's just a hobby?
If you're simply selling a few personal items without the intention of making a regular profit, and your sales fall below the £1,000 trading allowance, this is not deemed to be self-employment. You may not need to pay tax or report this miscellaneous income. Check with your tax advisor or accountant if you aren't sure, or give the team at Unicorn Accountants a call to talk it through.