Accounting for Amazon Sellers

Selling on Amazon from the UK can be profitable, but the accounting side is more complex than most sellers expect when they start. Between Amazon’s fee structure, VAT on marketplace sales, international fulfilment and the challenge of reconciling Amazon’s settlement reports with your actual books, there is a lot to keep on top of.

If you treat your Amazon business like a real business from day one – which it is – the accounting becomes manageable rather than overwhelming.

Business structure

Most UK Amazon sellers operate as either a sole trader or a limited company.

If your profits regularly exceed £30,000-£40,000, a limited company typically becomes more tax-efficient. Below that, sole trader is simpler and the tax difference is marginal.

VAT for Amazon sellers

VAT is the single most important accounting issue for Amazon sellers in the UK.

When to register

You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period. Note this is based on turnover (total sales), not profit.

For Amazon sellers, your turnover includes the full sale price the customer pays, not the amount Amazon settles to you after fees. If you sell a product for £25 and Amazon takes £7.50 in fees, your turnover is £25.

Amazon’s role as a marketplace

Since January 2021, Amazon is responsible for collecting and remitting VAT on sales to UK consumers where:

• The goods are shipped from outside the UK and the consignment value is £135 or less, or
• The goods are stored in the UK but the seller is established outside the UK

If you are a UK-established seller selling goods stored in the UK, you remain responsible for accounting for VAT yourself.

FBA and VAT on stock movements

If you use Fulfilment by Amazon (FBA) and Amazon stores your stock in other EU countries through the Pan-European FBA or European Fulfilment Network programmes, you may need to register for VAT in those countries. Moving stock across borders is treated as a deemed supply for VAT purposes.

This is a significant compliance burden. Many sellers opt for the UK-only fulfilment option to avoid multi-country VAT registration.

Understanding Amazon fees

Amazon’s fee structure is complex. Knowing what you are paying is essential for accurate profit calculations.

All fees charged by Amazon include VAT (Amazon charges you VAT on its services). If you are VAT-registered, you can reclaim this input VAT.

Reconciling Amazon settlement reports

Amazon pays you every 14 days via a settlement report. This report is the key document for your accounting, but it does not map neatly to individual transactions.

What the settlement report contains

• Product sales (net of Amazon’s fees)
• Refunds issued
• FBA fees deducted
• Advertising costs deducted
• Other adjustments (reimbursements, chargebacks)

Reconciliation process

1. Download the settlement report from Seller Central for each period
2. Match the total payout to the amount received in your bank account
3. Break down the components – revenue, fees, refunds, advertising
4. Record each element in your accounting software under the correct category
5. Check for discrepancies – Amazon occasionally makes errors, particularly around reimbursements for lost or damaged FBA stock

Many sellers use specialist tools like A2X, Link My Books or Heru to automate the import of Amazon data into their accounting software. These tools decode the settlement reports and create proper journal entries.

Cost of goods sold

To calculate your actual profit, you need accurate COGS figures:

• Purchase price of products (from your supplier)
• Shipping to Amazon (inbound freight, customs duties if importing)
• Product packaging and labelling costs
• Import duties and customs charges (if sourcing from overseas)

If you do not track COGS accurately, you will not know which products are actually profitable and which are losing money once all costs are accounted for.

Record-keeping

Amazon sellers must keep all the same records as any other business:

• Settlement reports from Amazon (download and archive every period)
• Purchase invoices from suppliers
• Shipping and freight invoices
• Import documentation (C88 customs entries, duty receipts)
• Bank statements
• VAT invoices for Amazon fees (available in Seller Central)

Keep records for at least 6 years.

Stock valuation

At year end, you need to value your closing stock for your accounts. Stock is valued at the lower of cost and net realisable value:

• Cost – purchase price plus import duties plus inbound shipping
• Net realisable value – the price you expect to sell it for minus selling costs (Amazon fees, shipping)

If you have slow-moving or obsolete stock, you may need to write it down to its expected selling price. This reduces your profit for the year but gives a more accurate picture of your business.

Common mistakes Amazon sellers make

• Not monitoring the VAT threshold – turnover can grow quickly; breaching £90,000 without registering triggers backdated VAT liability
• Ignoring multi-country VAT – using Pan-European FBA without registering for VAT in each country
• Treating the Amazon payout as revenue – your revenue is the full sale price, not the net settlement
• Not tracking COGS properly – without this, you have no idea of your real margins
• Forgetting to reclaim VAT on Amazon fees – these are significant and the VAT is reclaimable
• Not reconciling settlement reports – trusting Amazon’s numbers without checking them

Tax planning

If your Amazon business is profitable, consider:

• Timing your stock purchases – buying stock before year end increases expenses and reduces taxable profit for that period
• Pension contributions – employer contributions from a limited company are tax-deductible and NIC-free
• Capital allowances – equipment (computer, printer, camera for product photography) qualifies for the Annual Investment Allowance
• Using the right VAT scheme – compare the standard scheme, Flat Rate Scheme and cash accounting to see which suits your business