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Chapter 2.2: Tax, VAT and keeping records

What you'll learn: the tax basics every UK Amazon seller should know from day one: VAT, how Amazon reports seller income, and the simple record-keeping habits that make everything else easy. Part 2 (Chapter 6) shows how VAT affects your margins.

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General information only, not tax advice. We keep this light on purpose: your tax returns, VAT returns and the rules on how records must be kept are your accountant's job. We recommend finding one early, ideally one who works with online sellers.

Income tax or Corporation Tax​

  • Sole traders pay Income Tax and National Insurance on their profit (sales minus allowable costs such as stock, Amazon fees, prep supplies and software) through a yearly Self Assessment return.
  • Limited companies pay Corporation Tax on company profit and file annual accounts. Directors then pay personal tax on what they take out.

VAT: the basics​

VAT works a little differently for an Amazon business than you might expect, so it's worth understanding early.

1. The registration threshold is based on turnover, not profit. You must register for VAT once your taxable turnover (your total sales, not your profit) goes over the VAT registration threshold in a rolling 12-month period. Arbitrage involves buying and selling a lot of stock, so turnover can grow quickly even when margins are modest. Keep an eye on your rolling 12-month sales total. 👉 Check the current threshold on GOV.UK: VAT registration

2. Amazon charges VAT on its fees. If your business is established in the UK, Amazon adds VAT to its fees (referral fees, FBA fees, storage, your monthly plan and so on). Amazon's selling plans are quoted excluding VAT for this reason.

  • If you're not VAT registered, you can't reclaim that VAT, so it's a real cost. Build it into every calculation.
  • If you are VAT registered, you can usually reclaim it as input VAT. Your accountant will confirm how this works for you.

ArbiSource has a VAT setting for exactly this reason, so your profit figures reflect your real position. You'll set it in Chapter 4.

3. Once VAT registered, you charge VAT on your sales. A VAT-registered seller pays VAT on each sale, and can usually reclaim VAT on business purchases where they have a valid VAT invoice. This changes the maths on every product, which is why ArbiSource calculates profit differently in VAT-registered mode.

4. Voluntary registration and VAT schemes are options some sellers use. Whether they help depends entirely on your situation, so that's a conversation for your accountant.

Amazon reports seller income to HMRC​

Online marketplaces, including Amazon, share information about sellers' sales with HMRC under the digital platform reporting rules. This isn't a new tax. It just means HMRC can see platform sales, so it's one more reason to keep tidy records and report your income correctly. Selling goods or services on a digital platform (GOV.UK)

Good records: the simplest habit in the business​

Organised records make your accountant's job quicker, your tax return accurate and your business easier to grow. They're also handy if Amazon ever asks you about your stock. A little discipline from day one is all it takes:

  • Keep every order confirmation and receipt for stock you buy, online or in-store. Save them in one place (a cloud folder per month works well), and name each file with the date and retailer.
  • Ask for VAT invoices where the retailer offers them. These are useful if you're VAT registered or plan to be.
  • Log each purchase in a simple spreadsheet: date, retailer, product, ASIN, quantity, cost, and which shipment it went into. ArbiSource's Sourcing List export and the purchase-log template in the Downloads section give you a head start.
  • Download your Amazon settlement reports regularly from Seller Central.
  • Keep a note of other costs: prep supplies, software subscriptions, postage and mileage for sourcing trips.

Checklist​

  • I know whether I'm VAT registered, and I'll watch my rolling 12-month turnover against the threshold on GOV.UK
  • I understand that Amazon charges VAT on its fees
  • I've found (or am looking for) an accountant
  • I have a folder and a purchase log ready for my records