Tax is one of those topics that new Amazon sellers often avoid until it becomes urgent. Understanding your obligations from the start prevents nasty surprises and potential penalties down the line. This is not tax advice — always consult a qualified accountant — but here is what you need to be aware of.
Income Tax
If you are selling on Amazon, the profits you make are taxable income. Whether you are a sole trader or a limited company, you need to report your Amazon income to HMRC and pay the appropriate tax.
As a sole trader, you report your income through Self Assessment. You have a personal tax-free allowance (currently £12,570) and pay income tax on profits above that at the applicable rates. You also pay National Insurance contributions on your trading profits.
If you operate as a limited company, the company pays Corporation Tax on its profits, and you pay income tax on any salary or dividends you take from the company. The structure affects your overall tax liability — your accountant can advise on the most efficient approach.
VAT (Value Added Tax)
If your taxable turnover exceeds the VAT threshold (currently £90,000 per year), you must register for VAT. Once registered, you charge VAT on your sales and can reclaim VAT on your business purchases.
Amazon handles VAT on FBA sales somewhat differently depending on your registration status. If you are VAT-registered, you need to account for VAT on your sales, and Amazon provides reports to help you calculate this. If you are not VAT-registered, you do not charge VAT but you also cannot reclaim it on your purchases.
Some sellers voluntarily register for VAT below the threshold to reclaim VAT on their purchases. Whether this makes sense depends on your specific circumstances — discuss with your accountant.
Record Keeping
Keep records of everything. Purchase invoices and receipts for all stock you buy, Amazon fee statements and payment reports, prep centre invoices, shipping costs, advertising spend, and any other business expenses. HMRC can request records going back several years.
Amazon provides detailed transaction reports in Seller Central that break down sales, fees, refunds, and disbursements. Download these regularly — at minimum, monthly — and keep them organised.
Allowable Business Expenses
As an Amazon seller, you can deduct legitimate business expenses from your income, reducing your tax liability. Common deductible expenses include product purchases, Amazon fees, prep centre fees, shipping costs, advertising spend, software subscriptions (Keepa, Jungle Scout, etc.), business insurance, home office costs (if you work from home), and accountancy fees.
When to Get Professional Help
If you are turning over more than a few thousand pounds per year from Amazon, hiring an accountant — ideally one familiar with e-commerce and Amazon selling — is a worthwhile investment. They handle your Self Assessment or Corporation Tax returns, advise on VAT registration timing, identify allowable expenses you might miss, and keep you compliant with changing tax regulations.
The cost of an accountant (typically £500–£1,500 per year for a sole trader) is a tax-deductible business expense and almost always pays for itself in tax savings and peace of mind. Do not try to navigate UK tax alone once your business reaches meaningful levels.