Finance Guide for Online Sellers

When to register with HMRC

The £1,000 trading allowance lets anyone earn up to £1,000 of self-employed gross income in a tax year without registering or filing. Above that, you must register for Self Assessment and declare the income. From January 2024, online marketplaces report seller data directly to HMRC under the OECD's Digital Platform Reporting rules — so the days of casual selling under the radar are over.

Sole trader or limited?

The crossover for ecommerce typically arrives faster than for service businesses because turnover scales faster than profit. Many sellers find themselves at £150k+ turnover but only £25k profit — at which point sole trader is fine on tax but the personal liability of holding stock, dealing with returns, and managing supplier credit lines starts to argue for a limited company.

Banking and multi-currency

An ecommerce seller's banking stack is more complex than a freelancer's. You typically need a UK GBP current account for sales and supplier payments, a multi-currency account (Wise Business, Revolut Business) for paying overseas suppliers in USD/EUR/CNY, and a savings account for VAT reserve. Sellers using Amazon FBA in Europe also need EUR and possibly local currency accounts to receive payouts without losing 3–4% per conversion.

VAT — the big one

VAT is where most UK sellers slip up. The £90,000 threshold is calculated on a rolling 12-month basis — not your tax year. The moment you can see the next 12 months crossing the line, register. Once registered, you charge 20% on standard-rated sales to UK consumers and submit a return every quarter.

For overseas-sourced stock, import VAT and customs duty apply at the border. Postponed VAT Accounting (PVA) lets you account for import VAT on the VAT return rather than paying it at the border — almost always worth opting into.

Stock, COGS and margins

Profitability for sellers lives or dies on Cost of Goods Sold (COGS). Track unit cost including duty, freight and pre-packaging cost; track platform fees, payment processor fees and FBA fees per unit; and track returns and refunds as a discount to gross sales. Tools like A2X for Amazon/Shopify or Link My Books for Etsy/eBay reconcile platform payouts into your bookkeeping software and split out fees automatically.

Platform and payment fees

Most of these fees are charged from Ireland or Luxembourg and are subject to the reverse charge for UK VAT-registered sellers — your accountant will set this up in your bookkeeping software so VAT is correctly self-accounted.