Tax Guide for Amazon FBA Sellers UK

Selling through Amazon FBA (Fulfilment by Amazon) has become one of the most popular ways to build an online business in the UK. The model is appealing: you source products, send them to Amazon's warehouses, and Amazon handles storage, packing, shipping, and customer service. But while Amazon takes care of the logistics, they do not take care of your tax. That responsibility sits squarely with you.

Whether you are running a full-time FBA business or selling on the side alongside other work, you need to understand your UK tax obligations. Getting it wrong can lead to penalties, unexpected tax bills, and in the worst cases, HMRC investigations. This guide covers everything Amazon FBA sellers need to know about tax in the UK.

Registering as Self-Employed or Setting Up a Company

The first decision you need to make is your business structure. Most Amazon FBA sellers in the UK operate either as sole traders or through a limited company.

Sole Trader

Setting up as a sole trader is the simplest option. You register as self-employed with HMRC, report your income through self-assessment, and pay income tax and National Insurance on your profits. There is minimal paperwork and no separate legal entity. For a walkthrough of the registration process, see our guide on self-employment.

Limited Company

As your business grows, operating through a limited company may become more tax-efficient, particularly once your profits exceed the higher-rate tax threshold. A limited company pays corporation tax on its profits, and you can then draw income through a combination of salary and dividends. However, companies have more administrative requirements, including filing annual accounts with Companies House and maintaining statutory records.

For most new FBA sellers, starting as a sole trader and considering incorporation later is the sensible approach. The decision to incorporate is usually driven by profit levels, and a good accountant can advise on the right timing.

Understanding Your Income

Your income from Amazon FBA is the total amount Amazon pays into your bank account, which is your gross sales minus Amazon's fees. However, for accounting purposes, it is better practice to record your gross sales as income and Amazon's fees as an expense. This gives you a clearer picture of your business performance.

Amazon provides detailed reports through Seller Central, including:

• Payment reports: Showing what Amazon has deposited into your bank account
• Fee reports: Breaking down the various fees Amazon charges (referral fees, FBA fees, storage fees, etc.)
• Sales reports: Showing your gross sales figures

Download these reports regularly and reconcile them against your bank statements. Amazon's reporting can be confusing, especially when dealing with refunds, returns, and multi-currency transactions. Take time to understand the reports and ensure your accounting records match.

The Trading Allowance

If your total gross income from self-employment is under £1,000 in a tax year, you can use the trading allowance and do not need to file a tax return. However, this applies to gross income before deducting expenses, and most active FBA sellers will exceed this threshold quickly.

Allowable Expenses for Amazon FBA Sellers

Claiming all your legitimate business expenses is crucial for minimising your tax bill. Amazon FBA sellers typically have a wide range of deductible expenses.

Cost of Goods Sold

The cost of purchasing the products you sell is your biggest expense and is fully deductible. This includes:

• Purchase price of goods for resale
• Shipping costs to get goods to Amazon's warehouse
• Import duties and customs charges (if sourcing from overseas)
• Packaging and labelling materials
• Sample costs

Keep all purchase invoices and supplier receipts. If you source from overseas, keep records of exchange rates used for any transactions in foreign currencies.

Amazon Fees

All fees Amazon charges you are deductible business expenses:

• Referral fees (commission on each sale)
• FBA fulfilment fees (pick, pack, and ship)
• Monthly storage fees
• Long-term storage fees
• Subscription fees (Professional Seller account)
• Advertising fees (Amazon PPC)
• Removal or disposal fees

Other Business Expenses

• Software and tools: Product research tools (Jungle Scout, Helium 10), repricing software, inventory management tools, and accounting software
• Home office costs: If you work from home, you can claim a proportion of your household costs or use the simplified flat-rate method. See our guide on home office expenses
• Phone and broadband: The business proportion of your phone and internet costs
• Travel: Trips to suppliers, trade shows, or Amazon's warehouses
• Training: Courses and training directly related to your Amazon business
• Insurance: Product liability insurance, business insurance
• Professional fees: Accountant fees, legal advice, company formation costs
• Bank charges: Business account fees, PayPal fees, currency conversion charges
• Photography: Product photography equipment or professional photography services

For a complete breakdown of allowable expenses, see our guide on tax deductions for sole traders.

Stock Valuation

One area that catches many FBA sellers off guard is stock valuation. At the end of each accounting period, you need to value your unsold stock. This affects your profit calculation because only the cost of goods actually sold during the period is deducted, not the cost of all goods purchased.

Here is how it works:

Opening stock + Purchases during the year - Closing stock = Cost of goods sold

For example, if you started the year with £5,000 of stock, purchased £40,000 of new stock, and had £8,000 of stock remaining at year end, your cost of goods sold would be £5,000 + £40,000 - £8,000 = £37,000.

Stock should be valued at the lower of cost or net realisable value. If you have slow-moving stock that you expect to sell at a loss or dispose of, it should be valued at the amount you expect to receive for it, not what you paid.

Amazon provides inventory reports that can help you track stock levels, but you will need to assign costs to those units yourself. If you buy the same product at different prices over time, you can use either the FIFO (first in, first out) or average cost method to value your stock consistently.

VAT for Amazon FBA Sellers

VAT is one of the most complex areas for FBA sellers, and getting it wrong can result in significant penalties.

When to Register

You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month period, or if you expect it to exceed that threshold in the next 30 days alone. Note that this is based on turnover (total sales), not profit.

You can also register voluntarily if your turnover is below the threshold. This can be beneficial if most of your sales are to VAT-registered businesses (who can reclaim the VAT) or if you have significant VAT-inclusive expenses that you want to reclaim.

For a detailed guide, see our VAT registration guide.

Amazon and VAT

Amazon does not automatically handle VAT for most UK sellers. You are responsible for:

• Charging the correct rate of VAT on your sales
• Including VAT on your Amazon listings (your listed price should be VAT-inclusive for consumer sales)
• Submitting VAT returns to HMRC
• Keeping proper VAT records

However, Amazon does collect and remit VAT on behalf of overseas sellers selling to UK consumers through the Amazon platform, under the Online Marketplace VAT rules. If you are a UK-based seller, this generally does not apply to you, but understanding these rules is important if you sell internationally.

FBA and European VAT

If you use Amazon's European Fulfilment Network (EFN) or Pan-European FBA, your stock may be stored in warehouses across Europe. Since Brexit, this triggers VAT registration obligations in any EU country where your stock is stored. This is a significant compliance burden and one that many sellers underestimate.

If you sell to EU customers, you may also need to register for the EU's Import One-Stop Shop (IOSS) scheme. This area is complex and evolving, and professional advice is strongly recommended if you sell across borders.

Making Tax Digital

Under Making Tax Digital for Income Tax Self Assessment, sole traders with qualifying income above £50,000 will need to keep digital records and submit quarterly updates to HMRC from April 2026. If your Amazon FBA income (combined with any other self-employment income) exceeds this threshold, you need to be prepared.

Using MTD-compatible accounting software is essential. Our guide on Making Tax Digital covers the requirements, timeline, and how to get ready.

Record Keeping

As an Amazon FBA seller, you must keep detailed records including:

• All purchase invoices and receipts
• Amazon settlement reports and fee breakdowns
• Bank statements showing Amazon payments
• Stock records including opening and closing valuations
• VAT records if VAT registered
• Records of any international transactions, including exchange rates

These records must be kept for at least five years from the 31 January submission deadline of the relevant tax year. Good record keeping is not just a legal requirement; it is essential for understanding your business performance and making informed decisions about pricing, sourcing, and growth.

Accounted can help you keep your records organised with automated bank feeds, receipt scanning, and smart expense categorisation. Penny categorises your Amazon transactions automatically, so you always know exactly where you stand.

How Much Tax Will You Pay?

Your tax bill depends on your total income from all sources minus your allowable expenses. As a self-employed FBA seller, you pay:

Income Tax

Your profits are added to any other income and taxed at standard rates:

• Personal allowance: £0 tax on the first £12,570
• Basic rate: 20% on income from £12,570 to £50,270
• Higher rate: 40% on income from £50,270 to £125,140
• Additional rate: 45% on income above £125,140

National Insurance

• Class 2 NI: A flat weekly rate included in your self-assessment bill
• Class 4 NI: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270

Example Calculation

If your FBA business generates £60,000 in sales, has £30,000 in cost of goods sold, £8,000 in Amazon fees, and £4,000 in other expenses, your taxable profit is £18,000.

Income tax: 20% on (£18,000 - £12,570) = 20% on £5,430 = £1,086 Class 4 NI: 6% on £5,430 = £325.80

Total approximate tax and NI: £1,412 (plus a small amount of Class 2 NI)

Without claiming your expenses properly, you would have been taxed on the full £60,000 of sales. This illustrates why meticulous expense tracking matters.

Common Mistakes Amazon FBA Sellers Make

Ignoring stock valuation. Failing to account for unsold stock at year end can lead to overstated expenses and understated profits, which may look good in the short term but creates problems if HMRC investigates. The HMRC guidance on business records makes clear that stock records are a required part of your record keeping.

Not registering for VAT when required. If your turnover crosses the threshold and you do not register, HMRC can backdate your registration and you will owe VAT on past sales that you did not collect from customers.

Mixing personal and business finances. Use a dedicated business bank account for all Amazon-related transactions. This makes record keeping, reconciliation, and tax preparation significantly easier.

Forgetting to declare Amazon refunds and reimbursements. Amazon occasionally reimburses sellers for lost or damaged stock. These reimbursements are income and must be declared.

Not seeking advice on international selling. Selling across borders introduces VAT, customs, and transfer pricing complexities that can result in significant liabilities if not handled correctly. Get professional advice before expanding internationally.

Planning for Your Tax Bill

As a self-employed Amazon FBA seller, you are responsible for paying your own income tax and National Insurance. HMRC does not deduct tax at source, so you need to save throughout the year.

A good rule of thumb is to set aside 25% to 30% of your profits for tax. Set up a standing order to transfer this amount into a dedicated savings account each month, so the money is there when your self-assessment bill arrives.

For your first year of self-employment, be aware that HMRC may also require payments on account, which are advance payments toward next year's tax bill. This can mean a large bill in your first January, so plan ahead.

Filing your self-assessment return early gives you more time to plan. Our self-assessment guide walks you through the process step by step.

Selling on Amazon FBA can be enormously profitable, but only if you manage the tax side properly from the start. Stay organised, claim every legitimate expense, understand your VAT obligations, and file on time.

Ready to take the stress out of your Amazon FBA accounting? Sign up for Accounted and let Penny handle the numbers while you focus on sourcing and selling. Check our pricing page to find the right plan for your business.

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