Ecommerce Accounting Basics for UK Sellers: What You Need to Know

Why This Matters More Than You Think

HMRC doesn't care that you're a "small seller" or "it's just a side hustle." If you're making money selling online, you need to declare it, keep records, and potentially register for VAT. Getting this wrong can result in penalties, interest charges, or worse.

Sole Trader vs Limited Company

Most sellers start as sole traders (simplest option), but there's a decision point:

• Sole trader — simplest setup, file a self-assessment tax return annually. You pay income tax on profits. Good for under £30,000 profit/year
• Limited company — separate legal entity, you pay corporation tax (25%) and extract profits via salary + dividends. More admin but potentially more tax-efficient above ~£30,000 profit. Also provides limited liability (personal assets protected if the business has debts)

VAT Registration

You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month period (as of 2026). You can voluntarily register below this threshold.

Should you register voluntarily?

• Yes, if most of your sales are B2B (business customers can reclaim the VAT)
• Yes, if you have significant VAT-able expenses you could reclaim
• No, if most of your sales are B2C and adding 20% VAT would make you uncompetitive

Flat Rate Scheme can simplify VAT accounting for smaller businesses — you pay a fixed percentage of turnover and keep the difference. Worth discussing with an accountant.

Record Keeping

HMRC requires you to keep records of:

• All sales and income (platform payment reports cover this)
• All expenses and purchases (keep receipts/invoices)
• Import records including customs declarations
• Stock records if you hold inventory

Use accounting software — Xero, QuickBooks, or FreeAgent are the most popular for UK ecommerce sellers. They connect to bank accounts and can import marketplace data. The cost (£10-30/month) is far less than the time saved versus spreadsheets.

Deductible Expenses

As an ecommerce seller, you can deduct:

• Product costs (cost of goods sold)
• Platform fees and subscriptions
• Shipping and packaging materials
• Advertising spend
• Software and tools
• Home office costs (proportion of rent/mortgage, utilities)
• Business phone and internet (business proportion)
• Professional services (accountant, photographer)
• Travel to trade shows, suppliers, post office

The One Piece of Advice

Get an accountant who understands ecommerce. A generic high-street accountant won't know about marketplace fee structures, international VAT obligations, or FBA inventory accounting. An ecommerce-specialist accountant costs slightly more but saves significantly in correct tax planning. Ask in seller forums for recommendations — the ecommerce seller community is generally helpful with accountant referrals.