Why Amazon Sellers in the UK Often Need More Than Just an Online Calculator
Over the past decade I’ve sat across from hundreds of Amazon sellers in London and beyond, from those turning over £50,000 a year from their spare bedroom to seven-figure private-label businesses with warehouses in Essex and the Midlands. What strikes me every time is how quickly a side-hustle on Amazon can spiral into a proper tax headache. The platform is brilliant at getting you paid, but it’s deliberately unhelpful when it comes to telling you what you actually owe HMRC. A good personal tax advisor who really understands e-commerce can save you far more than their fee – usually within the first year alone.
Most sellers start with the Trading Allowance (£1,000 gross sales tax-free per year). That works fine while you’re shifting a few second-hand books or the odd pallet of phone cases. Cross the VAT threshold (£90,000 rolling 12-month UK sales from 1 April 2024, soon to be £90,000 again for 2025/26 unless the Budget changes it) and everything flips. Suddenly you’re compulsory VAT registered, filing quarterly returns, working out which sales are UK, which are EU distance sales, and which are exports. Do it wrong and HMRC will chase you for 20% on every UK sale going back four years, plus penalties and interest. I’ve seen that exact letter land on a client’s doormat for £187,000. A personal tax advisor in London who deals with Amazon daily will spot the danger signs months earlier and get the registration done properly from day one.
The Hidden Complexities That Catch Most Sellers Out
Amazon’s own VAT calculation service is convenient but it’s not clever. It simply charges 20% on the UK portion of the fee and leaves you to sort the rest. If you’re importing goods from China into an Amazon FBA warehouse in Germany and they’re subsequently sent to UK customers, that’s an acquisition for UK VAT purposes the moment the goods hit British soil. Many sellers think “Amazon sorted the VAT” and miss the fact they still need to declare it on their own UK return. I had a client in Shoreditch who paid £38,000 in penalties because he relied on Amazon’s dashboard and never realised he was personally liable. Personal tax advisor in the uk
Then there’s the question of where you actually make the supply. Sell through Amazon.de to a German consumer and you’re distance selling from the UK until you breach the German threshold (€100,000), at which point you need to VAT register in Germany or use the One Stop Shop. Keep proper records and a London tax advisor will run the numbers every quarter and tell you exactly when to register overseas – avoiding the 2% default surcharge that HMRC love to apply when you’re late.
Income Tax – It’s Rarely as Simple as Turnover Minus Costs
A lot of Amazon accountants still treat it like any other sole trade: sales less expenses equals profit, 20%/40%/45% tax. That approach misses the real money-saving opportunities. Capital allowances on warehousing equipment, racking, pallet trucks, even the laptop you run InventoryLab on – most sellers leave tens of thousands unclaimed because they expense everything through the profit and loss. I’ve had clients drop from the additional-rate band into basic rate just by accelerating capital allowances and using the Annual Investment Allowance properly.
Research and development relief is another area almost nobody claims. Developing a new product listing might not feel like R&D, but if you’re paying a designer to create original photography, mock-ups, or you’re tweaking formulations for a private-label supplement, a decent chunk of that spend can qualify for the SME R&D scheme – 186% deduction for companies or the new merged scheme from April 2024 giving up to 27% tax credit for loss-making entities. I claimed £41,000 back for a single client in Croydon who sells resistance bands – money he thought was gone forever.
Corporation Tax Route – When It Starts to Make Sense
Once you’re past about £150,000–£200,000 profit it’s nearly always worth incorporating. The corporation tax rate is 19% up to £50,000 profits and then marginal relief tapering to 25% at £250,000 (full-year figures for accounting periods starting after 1 April 2023). Compare that to 45% plus 2% National Insurance on dividends once you’re in the additional rate band as a sole trader and the maths is obvious.
The real advantage though is flexibility. Salary £12,570 (personal allowance), dividends up to the basic-rate band (£50,270 total income 2024/25), employer pension contributions that are unrestricted, and you can leave the rest in the company to buy stock or pay down import loans at only 19–25%. I’ve got clients who went from paying £98,000 personal tax on £280,000 profit to £42,000 total tax the year they incorporated – and that’s before the pension contributions.
Real Client Example – From Garage to £3.2m Turnover
Let me tell you about Raj in Ilford. Started selling phone chargers from his garage in 2018. By 2021 he was doing £1.4m turnover, all FBA, mostly imported direct from Shenzhen. He was still doing his own self-assessment, claiming maybe £18,000 of expenses and paying close to £200,000 tax each year. Came to me in early 2022. First thing we did was incorporate retrospectively (possible because he hadn’t yet filed the 2020/21 return). We then claimed capital allowances on £87,000 of warehouse racking and forklifts he’d bought and written off as expenses, plus R&D relief on product development. Immediate repayment from HMRC of £76,000. We set him up on flat-rate VAT (14.5% for wholesale-controlled goods at the time), saving another £39,000 a year. Three years later he pays less tax on £3.2m turnover than he did on £400,000 as a sole trader.
VAT Schemes – Flat Rate, Cash Accounting, Margin Scheme
These are the three tools most Amazon accountants never mention.
Flat-rate VAT used to be a goldmine for FBA sellers (you charged 20%, paid HMRC 14.5% or even 12% if you were limited cost trader). HMRC closed the limited cost trader loophole in 2017 and many accountants now say “don’t bother”. Wrong. If you’re selling standard-rated goods and your cost of goods is low relative to selling price, you can still save thousands. I have clients saving £15,000–£25,000 a year legitimately on flat rate.
Cash accounting lets you account for VAT when the customer pays you, not when you invoice. Critical for Amazon sellers because Amazon only pays you every 14 days and holds reserves. Without cash accounting you’re remitting VAT to HMRC up to 90 days before you actually receive the money.
Margin scheme applies when you buy and sell second-hand goods, returns, or overstock. You only charge VAT on the profit margin, not the full selling price. I’ve seen sellers drop their VAT bill by 70% just by switching to margin scheme on returned inventory.
Common Amazon-Specific Deductions That HMRC Will Challenge If Not Documented Properly
| Expense Type | Typical Allowable % or Rule | Common Mistake Sellers Make | What I Insist Clients Do Instead |
| Amazon Fees (Referral, FBA) | 100% deductible | Treat as cost of sale only | Split between deductible revenue expense and capital for software tools |
| Home office | £6/week simplified or actual proportion | Claim whole spare room without log | Keep 12-month electricity/water log + floor plan |
| Samples sent to reviewers | 100% if wholly and exclusively | No receipts, mixed personal use | Amazon order export + Royal Mail proof of posting |
| Import duty & freight | 100% deductible + VAT recoverable if VAT registered | Forget to reclaim import VAT | MT4 form + C79 certificate reconciliation every quarter |
| Photography & videography | Often qualifies for R&D relief | Expense only | Capitalise where appropriate + R&D claim |
Getting these wrong triggers an HMRC enquiry within months. Getting them right and evidenced properly means the enquiry letter never arrives.
Payroll, Pensions and Taking Money Out Tax-Efficiently
Once you incorporate, the question becomes how to extract profits without paying 45% tax and 2% NI. The optimal structure I use for most London-based Amazon companies in 2025/26 is:
- Director salary £12,570 (uses personal allowance, no tax, no NI)
- Employer pension contribution £60,000–£80,000 a year (unrestricted, corporation tax deductible)
- Balance as dividends (£50,270 at 0% if you have no other income, then 8.75% basic rate, 33.75% higher rate)
That structure alone can reduce the effective tax rate on £300,000 profit to under 20%. Compare that to a sole trader paying 45% plus class 4 NI and the difference is life-changing.
Overseas Supplier Payments and the Reverse Charge
If you’re importing from China and paying in USD, don’t forget the VAT reverse charge on the customs value plus duty plus freight. Many sellers only declare the goods value and miss the shipping cost, triggering an automatic HMRC penalty because the C79 doesn’t match the EC Sales List data. I run a quarterly reconciliation for every client between the freight invoices, the EORI customs declarations, and the import VAT certificates. Takes me 20 minutes, saves them thousands in penalties.
Managing Amazon Loans and Reserve Accounts
Amazon Lending and the 20–30% reserve they hold for 90 days create cash-flow headaches. Interest on Amazon loans is deductible, but only if you can prove it was used wholly and exclusively for the business. Keep a separate business bank account and route every penny of the loan into it – HMRC hate it when the loan lands in your personal account and then gets spent on stock mixed with private expenditure.
Record-Keeping Systems That Actually Work for Amazon Sellers
Forget Excel chaos. The systems I set clients up with are:
- Link My Books or A2X to pull Amazon settlement data directly into Xero
- Dext Prepare for receipts (phone snaps straight to the app)
- Separate business bank account and business credit card – nothing personal ever goes through them
- Quarterly management pack I review showing VAT liability, stock valuation, and profit forecast
Do that and your year-end accounts cost £1,500–£2,500 instead of £6,000–£10,000 because everything reconciles perfectly.
HMRC Enquiries – What Triggers Them and How to Survive
Top five red flags I see on Amazon seller returns that almost guarantee a letter:
- Gross profit margin below 18% (HMRC benchmark for FBA sellers is 22–35%)
- Import VAT claimed but no C79 certificates on file
- Turnover jumping 300% year-on-year with no explanation
- Director’s loan account overdrawn by more than £50,000 with no loan agreement
- Flat-rate VAT percentage suddenly dropping (usually means someone’s flipped to standard accounting without telling HMRC)
I’ve defended more Amazon enquiries in the last five years than most accountants see in a career. The ones who come out unscathed are the ones who engaged me before the enquiry opened, not after the penalty notice arrived.
Choosing the Right Personal Tax Advisor in London for Amazon Sellers
Not all accountants are equal when it comes to e-commerce. Ask these questions on the first call:
- How many Amazon FBA clients do you currently act for? (If the answer is less than 20, walk away)
- When was the last time you submitted an R&D claim for product photography or listing optimisation?
- Do you run quarterly VAT reconciliations including import VAT and OSS returns?
- Can you show me a real (anonymised) example of a client who saved money by incorporating?
- Will I deal with you personally or be passed to a junior?
A decent advisor will charge £2,000–£4,000 a year for a typical £500,000–£2m turnover seller and save you five to ten times that in the first 12 months. I’ve never had a client leave once they see the difference proper planning makes.
The Bottom Line Most Sellers Never Hear
Amazon is designed to make selling easy and tax complicated. The platform wants you focused on PPC and conversion rates, not MT4 forms and R&D legislation. A personal tax advisor in London who lives and breathes Amazon tax doesn’t just complete your return – they sit down every quarter, look at the numbers in real time, and tell you exactly what structure, what reliefs, and what compliance steps you need next. Do it yourself and you’ll probably be fine – until you’re not. Pay a specialist and the savings usually dwarf the fee within months.