Every pound you earn selling on Amazon is taxable income. HMRC has been increasingly focused on online sellers in recent years, and Amazon now shares seller data with HMRC under digital platform reporting rules. This means HMRC knows you are selling on Amazon and roughly how much you are making. Keeping your tax affairs in order is not optional — it is essential.
Registering for Self-Assessment
If you are selling as a sole trader and your trading income exceeds £1,000 per tax year (which is your revenue, not profit), you need to register for self-assessment and file a tax return. This £1,000 is the trading allowance — below it, you do not need to declare anything. Above it, you must register with HMRC and file annually.
Registration should happen as soon as you know you will exceed this threshold. You can register online through the HMRC website. If you are operating as a limited company, you will instead file a corporation tax return and pay yourself through PAYE or dividends.
What You Can Claim as Expenses
Your taxable profit is your revenue minus allowable expenses. For Amazon sellers, allowable expenses include the cost of goods purchased for resale, Amazon fees (referral fees, FBA fees, storage fees, advertising costs), prep centre fees, shipping costs, software subscriptions (Keepa, repricing tools, etc.), packaging materials, mileage for sourcing trips, home office costs (a proportion of your broadband, electricity, etc.), and professional fees (accountant, bookkeeping software).
Keep receipts and records for everything. HMRC can ask for evidence of your expenses, and if you cannot prove them, they will not be allowed as deductions.
VAT Obligations
If your taxable turnover exceeds the VAT threshold (currently £90,000), you must register for VAT. Once registered, you charge VAT on your sales and can reclaim VAT on your business purchases. Even below the threshold, some sellers voluntarily register for VAT to reclaim VAT on stock purchases and business expenses. Whether this makes sense depends on your specific situation and customer base.
Record Keeping
HMRC requires you to keep records for at least five years after the filing deadline for the relevant tax year. Use accounting software (Xero, QuickBooks, or even a well-maintained spreadsheet) to track all income and expenses. Download your Amazon settlement reports regularly and reconcile them with your bank statements. The few hours per month this takes is nothing compared to the stress of an HMRC enquiry with inadequate records.