What do brands like Furbo, InstaNatural and Piper have in common? They all started out selling their products on Amazon. Selling on Amazon clearly has its perks but sellers often overlook what’s needed in terms of bookkeeping and accounting when selling through this juggernaut. Can you do the numbers yourself or do you need an accountant for Amazon FBA? This is the question we hope to help you answer in this article.

We specialize in Amazon accounting. If you'd like to see how we have helped dozens of Amazon sellers, see our Amazon Accountants page. Let’s look at some important aspects when it comes to selling on Amazon.

1. Sales Revenue Tracking

You want to track your sales revenue by recording your total income from selling your products on Amazon within a specific timeframe. This will help you understand how much money your business is making by selling through the marketplace. As an Amazon seller, you need to consider the following:

• Amazon Sales Channels: One of the major benefits of selling on Amazon is the platforms international reach. This means you can sell on various marketplaces such as Amazon.co.uk, Amazon.de and Amazon.com. In such a case though, especially when selling across borders and in different currencies, you need to track each marketplace separately for accounting purposes.

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• Amazon Fees & Payments: Amazon generally collects and disburses payments to sellers every 14 days. Before doing so, they deduct fees. These include referral, fulfilment and storage fees. You want to ensure you account for your gross sales and Amazon fees separately.
• Multiple Currencies & Conversion Fees: If you are selling on multiple Amazon marketplaces, particularly non-GBP markets, you will need to convert the non-GBP sales into GBP for tax and reporting purposes. In various cases, Amazon may charge currency conversion fees based on the Amazon Currency Converter which you need to track.

2. VAT (Value-Added Tax) Compliance

VAT is a tax levied when you sell goods or services. Due to the complex nature of this tax, especially surrounding the VOEC rules, many seek out Amazon accountants in order to simplify operations and stay VAT compliant. VAT compliance is simply the process of ensuring your Amazon business meets its legal VAT obligations. Here are some aspects to consider when it comes to VAT for UK-based Amazon sellers:

• UK VAT Registration Threshold: From April 1 2024, UK-based businesses must register for VAT when their taxable turnover exceeds £90,000 in a 12-month period. You can also elect to register before reaching the threshold, often done for the purposes of claiming VAT back on your business expenses. When selling to UK customers with a business not based in the UK, there is no VAT threshold so you need to register for VAT as soon as you make your first sale to a UK customer.
• Collecting VAT on Amazon Sales (Output VAT): Fortunately, Amazon can help you collect VAT but you, as the seller, are responsible for reporting it properly to HMRC. The manner in which VAT is collected and applied on UK sales can depend on where the products are located at the point of sale (POS). Products may already be located in the UK at the point of sale (POS) or, if you are a dropshipper, the products may be located outside of the UK at the point of sale (POS) (e.g. if you are selling goods which are being purchased via Alibaba or similar platforms on a per sale basis):
  • Goods located in the UK at POS: If you’re VAT registered, you are required to charge VAT on your sales to UK-based customers. The VAT you collect like this is known as Output VAT.
  • Goods located outside the UK at POS: The VAT treatment of such sales into the UK depends on the total value of the shipping consignment. If the value is:
    • Under £135: You must account for the Output VAT on the sale (at 1/6th of the final selling price). 
    • Over £135: VAT will be paid by the customer before delivery of the item.
• Reclaiming VAT on Expenses (Input VAT): The VAT you pay on your business expenses and purchases is called Input VAT. For example, you may input VAT on the purchase of inventory from a supplier. As a VAT registered business, generally, you can reclaim this input VAT. It is important to keep VAT invoices from your suppliers for this purpose.
• VAT on UK Imports: You may well be importing products to sell on Amazon. When you do, you may need to pay import VAT. If you’re VAT registered, you can claim this VAT back. You can use the Customs Declaration Service (CDS) to manage your imports. You may well need an EORI number to import goods from outside the UK.
• International VAT Compliance: If you sell your products internationally, particularly through Amazon’s European Fulfilment Network (EFN) or Pan-European FBA, you may actually need to register for VAT in multiple countries. You can learn more in this VAT guide for Amazon sellers in the UK and Europe.
• Amazon VAT Automation Tools: Amazon offers a VAT calculation service which can automatically calculate and apply VAT on sales. However, it is your responsibility to make sure this data is accurate and that it matches your VAT returns. You may also choose to use third-party VAT automation tools like TaxJar or Avalara to help you manage VAT compliance across multiple regions.

3. Expense Tracking

You want to track all your expenses, these include:

• Amazon Selling Fees: You’re likely already aware that Amazon charges sellers various fees. These include referral, fulfilment (FBA), long-term storage and seller account subscription fees (Professional Seller Account). You need to track all of these as part of your expenses.
• Order Fulfilment:
  • If you choose to use Fulfilment by Amazon (FBA), then Amazon will charge you for storage, packing, and shipping. You need to track these fees as COGS (Cost of Goods Sold).
  • If you choose to self-fulfil your orders, you may well use Royal Mail or a courier service to ship orders to customers. You need to record these own shipping costs.
• Product Sourcing: When you purchase products from suppliers, ship your inventory and pay any import duties, you need to track all of these costs.
• Advertising and Marketing: Sellers often use Amazon advertising (also known as Amazon PPC) or external marketing methods (e.g. Google or Facebook Ads). You want to track any of these advertising costs as marketing expenses.

4. Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) represents the costs directly associated with sourcing and distributing the products you sell on Amazon within a specific period. This is an addition of all the direct costs associated with the products you sell on Amazon. This often includes the cost of purchasing or manufacturing the goods, shipping inventory from suppliers and your Amazon fulfilment fees.
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Calculate COGS using:‍

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

Where:

• Opening Inventory is the total value of your inventory on hand at the beginning of the period.
• Purchases is the total cost of additional product purchased during the period.
• Closing Inventory is the total value of your inventory on hand at the end of the period.

This is why Amazon FBA accountants will often ask you for your inventory on hand (the amount and value of inventory available) at various dates.

COGS is an essential figure when calculating your Gross Profit with:

‍Total Sales Revenue - COGS

5. Inventory Management

When it comes to your Amazon inventory, pay careful attention to:

• Inventory Valuation: When holding inventory, you must choose an inventory valuation method such as FIFO (First In, First Out) or average cost. The method chosen will affect your COGS and, in turn, taxable profits.
• Inventory Management: When using Fulfillment by Amazon (FBA), although you won’t physically manage inventory, you are responsible for tracking it. Amazon can provide inventory reports but you need to sync these with your accounting system to accurately track stock levels and calculate the value of your inventory.
• Stock Write-Offs: Whether you’re using FBA or self-fulfilling orders, if inventory is damaged, lost or expires, you need to account for this and write it off. These losses can be deducted as part of your COGs.

6. Income Tax Obligations

There are important considerations when it comes to taxation of the income your Amazon business generates:

• Sole Trader (Self-Assessment): If you’re selling on Amazon as a sole trader, you must report your profits to HMRC through self-assessment. You will then pay income tax and National Insurance contributions (NICs) on your net profit.
• Limited Company (Corporation Tax): If you’re selling on Amazon as a limited company, you'll need to report your numbers to HMRC via a corporation tax return. Then, you will pay corporation tax on your profits. Any income you take as a salary or as dividends will be subject to personal income tax. See our blog on the optimal mix of salary and dividends for directors in 2024/2025.
• Allowable Business Expenses: Many of the expenses you incur while running an Amazon business, such as product sourcing, shipping, advertising, and software costs (e.g. Helium 10) as well as Amazon fees are deductible expenses which will reduce your taxable profit. Reach out to specialist accountants for Amazon sellers if you’re unsure if a certain expense is allowable or not.

7. Reconciliation and Record Keeping

To ensure you are recording figures correctly, consider the following:

• Bank Account Reconciliation: You must regularly reconcile your Amazon payouts with your bank account. Amazon usually pays out every 14 days after deducting fees from the funds. You need to ensure your gross sales, the fees and payouts match records in your chosen accounting system.
• Transaction Reconciliation: Amazon provides you with various report options such as Settlement Reports or Transaction Reports. You want to use these to reconcile your sales, fees, and refunds while ensuring all fees are deducted and categorised accurately.
• Digital Record Keeping: The UK’s “Making Tax Digital” (MTD) initiative requires VAT-registered businesses to keep digital records and use MTD-compatible software when filing VAT returns. You should keep all business records for at least six years.

8. Accounting Software Integration

There are various Amazon accounting software options you may choose to use:

• Amazon Accounting Software Integration: Amazon allows you to integrate accounting tools such as Xero, FreeAgent or QuickBooks. We use Xero extensively. These tools automate the importing of Amazon sales data, allow easy categorisation of expenses and the generation of financial reports.
• Automated Amazon Bookkeeping: If you wish to ensure all sales, fees, VAT and refunds are tracked accurately, you can sync your Amazon data directly with your accounting software with tools such as A2X or Link My Books.
• Inventory Management Tools: In order to track stock levels, sales, and reorder points, Amazon sellers often use tools such as Ecomdash or TradeGecko (now Shopify Inventory).

9. Financial Reporting

Some of the most important financial reports you will want to generate as an Amazon seller are:

• Profit and Loss Statement (P&L): This financial report will track your Amazon revenue, COGS and expenses over a specified period. It’s essential for assessing profitability and in making business decisions.
• Cash Flow Statement: As an Amazon seller, monitoring your cash flow is critical, especially considering that Amazon withholds payments for a period (14 days) before disbursement. This report will provide you great insight into your current cash flow and how to manage it to ensure your business has enough liquidity.
• Balance Sheet: This will provide you a snapshot of your Amazon business’s financial health. It breaks down the business’s assets (inventory, cash), liabilities (loans, accounts payable) and equity.
• Amazon Sales Reports: One of the benefits of selling on Amazon is that they provide you with detailed sales reports and analytics. You should review these regularly to monitor the performance of your products.

10. Income Tax Deadlines

There are key tax dates you should add to your calendar:

• Self-Assessment Deadlines: The tax year starts on the 6th of April and ends on the 5th of April the following year. If you are selling on Amazon as a sole trader (or as part of a partnership) you should submit your self-assessment tax return by the 31st of January each year (for the previous tax year). This is also the date when you’ll pay your balancing payment or receive a balancing refund based on the payments on account you’ve already paid to HMRC. You can learn more in our HMRC Payments on Account blog.

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• Corporation Tax Deadlines: If you are selling on Amazon as a limited company, you need to register for Corporation Tax. The deadline (statutory filing date) is 12 months after the end of your company’s accounting period. This means you need to submit your corporation tax return anywhere between the date of your company year end and the statutory filing date. You may need to pay your corporation tax before your return is due because company’s with a taxable profit up to £1.5m need to pay within 9 months and 1 day after the company’s year end.
• VAT Returns: VAT returns are usually due quarterly but this can vary depending on your VAT scheme. You need to report all sales, purchases and the VAT you’ve collected and paid within 1 month and 7 days following the end of each VAT period.

Best Practices for Amazon Sellers in the UK

1. Automate VAT Admin: Take advantage of Amazon’s VAT Calculation Service or use integrated tools to simplify your VAT collection and filing. If you’re registering for VAT in multiple regions, consider using Amazon FBA accountants to help you with this.
2. Track Your Inventory: Sync your inventory data on Amazon with your chosen accounting system, particularly if you use FBA. This will allow for accurate COGS calculations and provide you a clear picture of stock levels.
3. Perform Regular Reconciliations: Monthly or fortnightly reconciliations (between your Amazon reports and bank account) will ensure all your sales, refunds, and fees are recorded accurately.
4. Keep It Separate: Keep your personal and business finances separate from the get go by using a dedicated business bank account.
5. Consult an Accountant for Amazon FBA: Work with UK-based accountants for Amazon sellers, who specialises in eCommerce and VAT compliance. This is exactly what we do at Ecommerce Accountants, so if you’d like to see how we can help, get in touch with us today.

That sums up our overview of the best Amazon accounting and bookkeeping practices. We hope this helps you decide whether or not you’ll be hiring an Amazon accountant. If you will be, please do reach out to us to see if we’re a fit. If you’re going to handle the numbers yourself, we hope this sheds some light on the topic and provides a foundation for you to work from.‍‍