If you sell on Amazon or Shopify regularly to make a profit, you are trading and must report that income to HMRC. You need to register for VAT once taxable sales pass £90,000 in any rolling 12 months, record sales before fees are deducted, and keep evidence for every cost you claim. Marketplaces now report seller income to HMRC, so accurate records matter more than ever.
KEY FACTS
- The trading allowance means the first £1,000 of trading income is tax-free.
- VAT registration is compulsory once taxable turnover passes £90,000 in a rolling 12 months.
- Since January 2024, online platforms collect seller income details and report them to HMRC.
Marketplace payouts are net of fees, so gross sales and fees must be recorded separately.
Are You Trading or Just Selling Unwanted Items?
Clearing out your loft is not trading. Buying stock to resell, making products to sell, or running a store with regular sales usually is. HMRC looks at factors such as how often you sell, whether you bought items with the intention of selling them, and whether you add value before you sell. Once you are trading, income above the £1,000 trading allowance must be reported through Self Assessment, or through a company if you trade as one.
Platform Reporting: HMRC Already Sees Your Sales
Under the digital platform reporting rules that began on 1 January 2024, online marketplaces collect details of sellers’ income and send them to HMRC each year. Sellers with fewer than 30 sales and under about £1,700 (€2,000) in a year are generally not reported. Being reported does not create extra tax, but HMRC can compare what the platform says with what you declared, so your figures need to match.
VAT and Marketplace Rules
UK-based sellers must register for VAT when taxable turnover goes over £90,000 in any rolling 12-month period, or is expected to in the next 30 days alone. That test uses your total sales across every channel, not your payouts after fees, which is why many sellers cross the threshold earlier than they expect.
Since 2021, online marketplaces have been responsible for VAT on certain sales, mainly goods sold by overseas sellers to UK customers and low-value imported consignments. If you are established in the UK, you remain responsible for your own VAT. Platform fees can also carry VAT, so check your fee invoices before claiming input tax. Specialist ecommerce accountants can map each sales channel to the right VAT treatment.
Allowable Costs for Online Sellers
You can deduct costs incurred wholly and exclusively for the business. For most sellers, these include:
| Cost | Examples |
| Stock | Cost of goods sold, packaging, inbound shipping |
| Platform fees | Amazon referral and FBA fees, Shopify subscription and apps |
| Payment fees | Shopify Payments, Stripe and PayPal charges |
| Fulfilment | Postage, couriers, returns and storage |
| Marketing | Amazon Sponsored Products, social media ads |
| Running costs | Software, phone, accountancy fees, a share of home costs |
Refunds and chargebacks reduce your sales figure, and unsold stock at the year end is not an expense until it is sold or written off. Sellers who also run a shop alongside their online store can speak to retail accountants about stock counts and combining the two channels.
Keep Records That Match the Platform
The most common problem we see is bookkeeping that records only the payout landing in the bank. That understates sales, hides fees and makes the VAT threshold harder to track. Reconciling each settlement report into sales, fees, refunds and adjustments fixes it. Regular bookkeeping services connected to your platforms make this routine, and keep you ready for Making Tax Digital if your income is above £30,000 from April 2027.
Allenby Accountants works with Amazon, Shopify and multi-channel sellers as small business accountants in London, handling bookkeeping, VAT, Self Assessment and company accounts.
Frequently asked questions
Do I pay tax on my first £1,000 of Amazon sales?
No. The £1,000 trading allowance covers trading income up to that amount. Above it, you report the income and can claim expenses instead.
Does my VAT threshold use sales or payouts?
Sales. The £90,000 test is based on your total taxable sales before platform fees are taken off.
Will Amazon report my income to HMRC?
Yes, if you have 30 or more sales or roughly £1,700 or more in a year.
Get Your Ecommerce Accounts in Order
Call 0208 914 8887 or email info@allenbyaccountants.co.uk for a free, no-obligation consultation.
