Setting up your accounting system can be one of the most stressful parts of opening a new business. In particular, e-commerces need different accounting than other businesses. To help you in your new adventure, in this blog we go through the main differences between accounting for e-commerce vs traditional businesses and everything that you need to know about the basics of accounting for Amazon, eBay and selling on your website.
Ecommerce accounting requirements
You will then find there are some differences between ‘normal’ businesses and ecommerce businesses that sell through Amazon, eBay, or a website. For example, there are international duties and taxes that your ecommerce business will need to comply with if it ships overseas.
You also need to consider that shipping can account for a high proportion of your total expenses. You will need to track these expenses in your accounting software and decide if you will pass on these costs to your customers.
Besides complying with the accounting requirements of any traditional business, your ecommerce will also have some additional reporting requirements to consider.
At Steele Financial we use Xero for all of our clients to help make this previously time-consuming task much more manageable. Xero will help you maintain accurate records of all income and expenses for accurate reporting. You need to maintain those records for a number of years, depending on the legal setup of your business.
Your business will need to prepare different financial statements depending on its setup.
You will be required to submit annual accounts and tax computations and you will also need to report some of this information to both HMRC and Companies House.
When it comes to VAT, the ecommerce accounting requirements can be complicated for some businesses. If your business exceeds the VAT registration threshold (for 20/21 it was £85,000 of taxable turnover) in a 12 month period, you will need to register for VAT. Your accountant will help you decide which VAT scheme will be the best fit for your business.
If you are selling overseas (for example, if you’ve registered for Amazon’s pan EU fulfilment service) the VAT filing requirements can be more complicated. In this case, your accountant will also help you register for VAT in every country you sell into. Your customer will pay for VAT on delivery so if you are exporting goods into Europe, you should not include any VAT in the cost of the product.
There is much more to VAT for ecommerces, but your accountant will help you navigate all the different scenarios depending on your particular business circumstances.
Additionally, you will also need to complete your self assessment. If you are a sole trader, you will need to report your profits, and if you are the director of a limited company you will also be required to register for and complete a self assessment tax return, although your businesses profits will not be taxed under income tax. Instead, you will need to follow the corporation tax rules, and it will be the distributions from the company that will need to be declared on your self assessment.
If your business is exporting or importing goods from or to the UK, you will need to ensure the correct customs forms are completed. With Brexit, there are also a few changes related to VAT and customs. For example, if your business exports goods to the EU, you will need to complete customs forms (that will depend on the value of the product number). You will also need to display an EORI (Economic Operators Registration and Identification) number where necessary.
Accounting for Amazon sellers
If you are starting an Amazon business, the above will apply to you and there might be some areas of your accounting that might be more difficult than for traditional businesses. Fortunately, there is software that has been designed to make your life easier for business owners like you.
Amazon accounting software
As with any other business, using spreadsheets for your accounting is very time-consuming and will cause you to make mistakes. Especially if you want to start an Amazon business, you will need an online accounting system that can handle any transaction volumes without issues.
With the help of your accountant, you will have a reliable and easy-to-use accounting system that is correctly set up and that will show you reliable data that you can use to grow your Amazon business.
Whether you are selling on your own website, on Amazon or eBay, as with any other business, you will also need accurate business planning. A business plan will help you align your goals with your budgets and plan for the future. Accounting software like Xero includes tools that will help you strategise for your business.
Amazon, eBay and Shopify apps
Amazon bookkeeping can be hugely time-consuming and full of gaps.To help with this, there are apps and Amazon and eBay accounting integrations that work with your Xero accounting software to streamline all payments, stock management and accounting and bookkeeping requirements.
Have you recently started an online business and need help with your accounting? Our friendly team at Steele Financial is available to answer any questions you may have. Get in touch.