Did you know that, per capita, the Brits buy more eBay items per month than any other country in the world? While the advantages of selling on Ebay are well-known, sellers often overlook what’s needed in terms of bookkeeping and accounting for Ebay sales. In this article, we break down the basics so that you can decide whether or not you’ll be hiring Ebay accountants for your business. If you'd like to see how we work with Ebay sellers, and hear it from our clients themselves, check out our Accountants for Ebay page. Here are some aspects you should consider when selling on Ebay:

1. Sales Revenue Tracking

It’s important to track your sales revenue. You can do this by recording the total income you generate from selling your products on Ebay within a specific timeframe. In terms of this, you need to consider:

• Ebay Sales Channels: As an Ebay seller, you have the opportunity to sell on a variety of Ebay marketplaces such as Ebay UK and Ebay US. If you choose to sell on multiple Ebay platforms, then you need to track each marketplace separately for accounting purposes.‍
• Managed Payments: Ebay uses a Managed Payments system. This means Ebay processes payments and deducts fees before they transfer the proceeds to your bank account. To properly calculate revenue, you need to track the amount before the fees are deducted (gross sales) and the fees deducted.‍
• Currency Conversion Fees: If you are selling on multiple Ebay platforms, you will need to convert any non-GBP sales into GBP for UK tax purposes. Where applicable, you will also need to track the currency conversion fees.

2. VAT Compliance

Value-Added Tax is levied when you sell your goods or services. VAT can be a complex topic, particularly when it comes to the VOEC rules. This tax is often a major reason why sellers seek out Ebay accountants. VAT compliance is the process of ensuring your Ebay business meets its VAT obligations. UK-based Ebay sellers should consider the following:

• UK VAT Registration: From the 1st of April 2024, UK-based businesses must register for VAT when their taxable turnover exceeds £90,000 within a 12-month period. This is known as the VAT threshold. You can elect to register prior to reaching the threshold. Sellers often choose to do this where they can benefit from claiming VAT back on business expenses. If you’re selling to UK customers but your business is not based in the UK, there’s no VAT threshold. This means you should register for VAT upon making your first sale to a UK customer.
• Collecting VAT on Ebay Sales (Output VAT): Fortunately, Ebay can help you collect VAT but you are responsible for reporting it properly to HMRC. The manner in which VAT is applied on UK sales depends on where products are located at the point of sale (POS). You may well already have your products within the UK at the point of sale (POS) but if you are, for example, dropshipping on Ebay, then the products may be located outside of the UK at the POS. Here’s how it works:
  • Goods in the UK at POS: If you’re VAT registered, you must charge VAT on your sales to UK-based customers. VAT you collect like this is called Output VAT.
  • Goods outside the UK at POS: The VAT treatment of these sales depends on the total value of the shipping consignment. If the value is:
    • Under £135: You are required to account for the Output VAT on the sale (at 1/6th of the final selling price). 
    • Over £135: VAT will be paid directly by the customer before delivery of the item.
• VAT Invoicing: If you are VAT registered, you need to issue VAT-compliant invoices for your Ebay sales. Fortunately, Ebay does provide you with tools for creating VAT invoices, but you need to ensure these align with your VAT filings.
• Global Selling: If you are selling internationally on eBay, you may need to register for VAT in other (non-UK) countries, this is particularly the case in the EU, post-Brexit. You will need to ensure that import duties, VAT, and any other taxes are accounted for.
• Reclaiming VAT (Input VAT): As an Ebay seller, you will pay VAT on various business expenses and purchases. This is known as Input VAT. You may, for example, pay input VAT when purchasing inventory. If you are a VAT registered business, you can, generally, reclaim this input VAT. You must keep your VAT invoices for these purposes.
• Import VAT: If you’re importing goods to sell on Ebay, you will, generally, pay import VAT when doing so. If you’re VAT registered, once again, you can claim this VAT back. If you don’t already have one, you may well need an EORI number to import goods into the UK.
• Automated VAT Tools: Use third-party software tools like Avalara or TaxJar to automate VAT calculations and compliance across different regions. These tools integrate with eBay and simplify VAT returns.

3. Expense Tracking

Tracking your expenses is another essential component. These may include:

• Ebay Selling Fees: Ebay charges various fees to sellers. These include listing fees, final value fees, and other fees for specialised services. You need to accurately track and record these fees as expenses.
• Fulfilment Costs: If you choose to fulfil orders to customers yourself, you must track the shipping costs as part of your expenses. This often includes the costs associated with shipping services such as Royal Mail or DPD. If you have eBay manage your fulfilment via their partner services, you need to track any fees they charge for this.
• Product Costs: All the costs associated with acquiring the products you sell on eBay must be tracked. This includes any sourcing, manufacturing, and shipping costs. These will make up your Cost of Goods Sold (COGS), which we discuss next.
• eBay Store Fees: If you pay for an eBay store subscription, such as the Basic, Featured or Anchor plan, you must record this fee as a business expense.
• Advertising fees: As an Ebay seller, you may choose to advertise using eBay's promoted listings or other methods such as Facebook Ads. No matter your choice, you must track these costs separately as marketing expenses.

4. Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) shows all the costs associated with sourcing and distributing the goods you sell on Ebay within a period. Generally, this includes the cost of purchasing or manufacturing your products, shipping your inventory to the POS and any order fulfilment fees.

You can calculate COGS using:

Opening Inventory + Purchases (within the period) – Closing Inventory

Where:

• Opening Inventory is the value of your available inventory at the beginning of the period.
• Purchases represents the total cost of additional inventory you have purchased during the period.
• Closing Inventory is the value of your available inventory at the end of the period.

This is the reason accountants for Ebay will often ask you for your “inventory on hand” (the amount and value of your inventory) at various dates.

5. Inventory Management

Managing your inventory is another important piece of the puzzle. You should consider:

• Inventory Valuation: If you are holding inventory, you need to choose an inventory valuation method. This could be FIFO (First In, First Out), LIFO (Last In, First Out), or the weighted average cost method. The method you choose will affect how you calculate the value of your inventory and your profit margins.
• Stock Write-Offs: If your inventory is damaged, lost, expired or becomes unsellable for another reason, it should be written off. Fortunately, these losses can be deducted from your taxable profit.

6. Income Tax Obligations

There are important considerations when it comes to tax on the income your Ebay business generates:

• Sole Trader (Self-Assessment): If you’re selling on Ebay as a sole trader, you will use a self-assessment tax return to report your profits to HMRC. You will need to pay income tax and National Insurance contributions (NICs) on your net profit.
• Limited Company (Corporation Tax): If you’re selling on Ebay as a limited company, you'll use a corporation tax return to report your numbers to HMRC. You will need to pay corporation tax on your profits. There have been some changes announced in the latest UK budget you will want to learn about, particularly if you have employees. Any income you personally take in the form of a salary or as dividends is subject to the personal income tax rates. Check out our blog on the optimal mix of salary and dividends for directors in 2024/2025.
• Allowable Business Expenses: Most of the expenses you run into while running your Ebay business are allowable expenses. These often include the costs of sourcing product, manufacturing, shipping, advertising, business software and Ebay’s fees. These allowable expenses can be used to reduce your taxable profit. Get in touch with specialist accountants for Ebay sellers if you aren’t sure whether or not a certain expense is allowable.

7. Reconciliation & Record Keeping

To make sure you’re recording figures accurately, consider the following:

• Bank Account Reconciliation: You want to regularly reconcile your Ebay payouts with your bank statements. Ebay’s system deducts fees before issuing your payouts. For this reason, it is imperative you record the gross sales, fees deducted and net payout amounts.
• Managed Payments Reconciliation: Since Ebay’s Managed Payments system bundles sales and fees into your payments, you want to reconcile these reports with your accounting records.
• Digital Record Keeping: If you’re VAT registered, then you need to comply with the UK’s “Making Tax Digital” (MTD) initiative. This requires you to keep digital records and to use MTD-compatible software when filing your VAT returns. You need to retain all business records for a minimum of six years.

8. Accounting Software Integration

There are a host of Ebay accounting software solutions for you to choose from based on your needs:

• Ebay & Accounting Software: Ebay allows you to integrate accounting software such as Xero, FreeAgent or QuickBooks. You can use these to automatically import data from eBay, track your expenses or manage VAT compliance.
• Automated Bookkeeping: You can use further automation tools such as A2X or Link My Books to sync your eBay selling data directly with your accounting system. This improves the accuracy of your system by reducing manual data entry errors.
• Inventory Management: If you are holding a significant amount of inventory, you will want to integrate your inventory management software (such as Inventory Planner, Zoho or Veeqo) with your chosen accounting platform. This will allow you to accurately sync stock levels, calculate reorder points, and track product costs.

9. Financial Reporting

The most important reports you’ll want to generate as an Ebay seller are:

• Profit and Loss Statement: This report tracks your Ebay revenue, COGS and expenses over a specified timeframe. It will play a vital role when assessing your profitability and making business decisions.
• Cash Flow Statement: As an Ebay seller, you need to understand your cash flow. Cash flow is essential for ensuring that you can cover your expenses. It becomes even more important where you have long lead times between paying suppliers and receiving payouts from eBay.
• Balance Sheet: This shows a snapshot of your Ebay business’s financial health by breaking down your business’s assets (inventory, cash etc.), liabilities (loans, accounts payable etc.) and equity.
• Sales and Inventory Reports: Ebay provides sellers with reports on sales performance and inventory data. You should use these to spot trends and take action on any slow-moving stock.

10. Tax Deadlines

Here are a few tax dates you should be aware of:

• Self-Assessment Deadlines: The UK’s tax year starts on 6 April and ends on 5 April the following year. If you’re selling on Ebay as a sole trader (or in a Partnership) you need to submit your self-assessment tax return by 31 January each year (for the prior tax year). On this same date, you’ll also pay your balancing payment or receive a balancing refund from HMRC based on your payments on account. Check out our blog to learn more about HMRC Payments on Account.

• Corporation Tax Deadlines: If you’re selling on Ebay as a limited company, you must register for Corporation Tax, if you haven’t already done so. The statutory filing date (deadline) is 12 months following the end of your company’s accounting period (company’s year end). Therefore, you must submit your corporation tax return within 12 months after your company’s year end. However, since companies with a taxable profit up to £1.5m must pay corporation tax within 9 months and 1 day after the company’s year end, you may need to pay your tax before your return is due.
• VAT Returns: VAT returns are generally due quarterly, however this may vary if you’ve elected to use a different VAT scheme. You must file a VAT return within 1 month and 7 days following the end of each VAT period.

Summary for eBay Sellers in the UK

• Automate Your VAT: Take advantage of Ebay’s built-in tools or third-party VAT automation software, as discussed above, to ensure you are accurately collecting and filing VAT for all sales. If you need help, consider partnering with specialist Ebay accountants.
• Track Your Inventory: For tax and reporting purposes, you want to accurately track your inventory costs and values.This also allows you to calculate your COGS and make adjustments based on stock levels.
• Reconcile Frequently: To catch any discrepancies early, reconcile your eBay sales, fees, and payouts with your accounting system on a regular basis (at least monthly).
• Maintain a Business Bank Account:  Maintain a dedicated business bank account. This will help you avoid mixing personal and business finances, making your bookkeeping and filing far easier. 
• Consult with Accountants for Ebay: Work with local accountants for Ebay sellers, who are specialists in eCommerce and VAT compliance. That is what we do at Ecommerce Accountants, so if you’d like to work with us, please get in touch with us today.

That is our overview of the best practices concerning bookkeeping and accounting for Ebay sales. Our hope is that this helps you make the decision on whether or not to hire Ebay accountants for your business. If you choose to do so, please do reach out to us to see how we can help. If you choose to handle the numbers side yourself, hopefully this blog provides you the building blocks to work from.