eCommerce Accounting for Etsy, eBay & Amazon

With online selling booming, many individuals start trading on Etsy, eBay, and Amazon without realising they need proper accounting. A client comes to us with their sales reports and bank statements, unsure how to manage their accounts, taxes, and compliance obligations. Here’s how we guide them to ensure compliance, efficiency, and tax savings.

1. Business Structure: Sole Trader or Limited Company?

One of the first things we assess is whether the client should trade as a sole trader or set up a limited company.

• Sole Trader: Simple setup, less admin, but personal liability for debts.
• Limited Company: Tax-efficient for higher profits, offers personal liability protection.

✅ Our Advice: If profits are under £50,000, staying as a sole trader may be best. If profits grow beyond this, a limited company may be more tax-efficient.

2. Bookkeeping & Record-Keeping

The client has sales reports and bank statements, but that’s not enough for proper financial records.

• We recommend using cloud accounting software like Xero, QuickBooks, or FreeAgent, which syncs with Amazon, Etsy, and eBay.
• Transactions should be categorised properly—sales, fees, refunds, advertising, and stock purchases.
• If stock is held, an inventory tracking system should be in place.

✅ Our Advice: Automating bookkeeping will save time and reduce errors, especially when tax deadlines approach.

3. Understanding Taxes: Income Tax, Corporation Tax, VAT

Taxes can be complex for online sellers, especially with VAT thresholds and international sales.

Taxes to Consider:

• Income Tax or Corporation Tax – Based on profits if a sole trader or limited company.
• VAT Registration – If turnover exceeds £85,000, VAT registration is compulsory.
• Selling Abroad? – Different VAT rules apply for EU and international sales under the One Stop Shop (OSS) VAT scheme.

✅ Our Advice: If VAT registration is required, we help clients decide between standard VAT, flat rate, or margin schemes to minimise costs.

4. Claiming Allowable Expenses

Many online sellers overpay tax because they don’t claim all allowable expenses. These include:

• eBay, Etsy, and Amazon seller fees.
• Postage and packaging costs.
• Advertising and marketing expenses (Facebook Ads, Google Ads, influencer sponsorships).
• Home office and utility costs if working from home.
• Software subscriptions (accounting software, design tools, eCommerce platforms).
• Stock purchases and inventory storage costs.

✅ Our Advice: Keeping detailed receipts and records ensures all legitimate expenses are claimed, reducing taxable profit.

5. Cash Flow & Scaling the Business

Many online sellers experience seasonal fluctuations in sales. Proper cash flow planning is essential.

• We review sales trends to identify peak and slow periods.
• We advise on budgeting for stock purchases, advertising, and tax payments.
• If the business is growing, we assess funding options like business loans or grants.

✅ Our Advice: A cash flow forecast will help the client avoid cash shortages and prepare for growth opportunities.

6. Compliance with HMRC & Avoiding Penalties

Failing to file accurate tax returns can lead to HMRC investigations, penalties, and interest charges.

• We ensure that Self-Assessment, Corporation Tax, and VAT filings are done on time.
• We provide quarterly tax planning to help avoid large unexpected tax bills.
• If the client has undeclared past sales, we assist in voluntary disclosure to HMRC to minimise penalties.

✅ Our Advice: Keeping compliant with Making Tax Digital (MTD) ensures smooth tax filings and avoids costly errors.

Final Thoughts: Why Every eCommerce Seller Needs an Accountant

Selling on Etsy, eBay, and Amazon is a great way to build a business, but accounting and tax compliance shouldn’t be ignored. By setting up the right structure, managing VAT correctly, claiming expenses, and planning for cash flow, an eCommerce seller can focus on growing their business without financial stress.

If you’re an online seller looking to stay compliant and optimise tax efficiency, let’s talk. We’ll help you manage your finances, so you can focus on sales.