Amazon encourages many individuals to sell their products through their website. If you are thinking of selling your products and need excess to the worldwide market, amazon is the perfect opportunity for you. Once you are part of amazon, amazon through `Fulfilment by amazon’ will collect the product from your house, pack it and deliver it to the customer. Payment for the balance of your orders (net of Amazon Seller fees) is deposited into your bank account, and you receive notification by e-mail that your payment has been sent.
It looks as simple but do not forget that you are have to pay taxes on the income. How you pay taxes will depend on the legal structure. Are you working as a sole trader or are you working through a company.
In this article we will look at the tax implications that you have to consider if you are working through a company.
In UK, a company pays tax at 20% on all the profits, however, in UK the personal tax rate can go as high as 45%. You might be better off selling through a company.
As a seller you will have the obligation to file a corporation tax return annually to declare your profits. It is very important that you declare and pay your tax correctly as there can be serious legal action taken in case of incorrect tax declarations such as fines, penalties and/or possible jail time. How is the profit calculated? Profit will be calculated by deducting the allowable expense from the revenue. Allowable expenses are those expense which are allowed by HMRC to be deducted from the revenue. These are the expense which incurred directly in earning the revenue. If your allowable expenses are greater than the revenue then you do not have to pay any tax to HMRC.
Allowable expenses will include the amazon fees, stationery, phone bills, office premises cost, staff costs if you have any etc. It is also very important to keep the receipt and bills in case you need to show them to HMRC.
You might also have to register for VAT
Amazon business VAT registration is not compulsory until your business taxable sale is above £85000. At the end of each month, Amazon will issue a trading invoice that details your taxable items. Listing all the VAT paid on fulfilment costs and VAT collected on Amazon sales.
The VAT registered sellers have to pay VAT on all the sales that they make however they can claim back any VAT that they paid on the expenses associated with those sales. VAT registered businesses will have to file a VAT return annually to declare the amount payable or refundable to HMRC. This needs to be done quarterly.
Again, as a VAT registered seller you need to keep all the receipts of your expenses, otherwise it is possible that you might be leaving some of the money with HMRC which is actually yours.
For further guidance contact us.