WHAT EXPERTISE DOES HANLEY & CO HAVE?
We are proud to act as Chartered Accountants for a significant number of Amazon, eBay and other online traders throughout the UK and even overseas, and we would be delighted to offer you specialist advice and service.
Whether you’re just starting out or are an existing online trader (Amazon or eBay or WhatsApp or Facebook etc), we really understand the ins and outs of this industry and the unique challenges and opportunities it presents to you and your business. For example, we helped one client grow his eBay business from his home to become eBay’s top seller.
Below is some more information on the particular challenges currently faced by online traders and how we can help. But first let us promise to:
- talk your lingo – for example we understand your site charges, Paypal fees and margins structures and also your warehousing choices – back-bedroom, own storage or Fulfilled By Amazon (FBA). In other words you won’t need to ‘translate’ for us, before asking our advice.
- recommend the right business structure for you – to maximise profits and minimise your tax liabilities.
- advise you how to deal with the VAT thresholds (if applicable) and the various schemes available to you. Explain how sales in the EU are considered for VAT purposes – and your options as you grow your online business.
- offer you a full in-house bookkeeping service or if you prefer to do your own bookkeeping, we will provide and train you to use a bespoke manual bookkeeping system or award-winning Kashflow online software to make your job easier
- help you to correctly classify all your purchases during the year and value your stock at the end of the year – from stock to stationery and computers – to maximise taxable expenses and capital allowance claims.
- take the hassle out of your staffing arrangements by operating a PAYE scheme on your behalf for any employees (remember there is no such thing as a ‘casual worker’ anymore!)
- advise about tax relief on working from home costs you incur.
- help you reorganise personal loans and mortgages as business loans, maximising tax relief on the interest.
- plan your accounts period end and most of the work around your ‘quiet season’ if necessary, so you can minimise admin and instead concentrate on running your business when you need to.
- advise how to draw money from your business in the most tax efficient way possible.
- charge you reasonable fees – for example £400 to £600 plus VAT for an average sole trader business. For a Partnership add about £200. For a limited company our fees could be around £1,000 plus VAT, so long as the bookkeeping is good quality.
- offer you this free specialist guide FREE download - eBay and Online Traders - How To Pay Less Tax
CHALLENGES FACED BY ONLINE RETAILERS
HM Revenue & Customs are consistently interested in Amazon and eBay traders and regularly launch high profile ‘campaigns’ to identify those not paying the right amount of tax. Since 2014 HMRC have had the power to download account information and force sellers to pay disputed tax.
Here are just a few relevant news articles:
We are aware that many traders receive ‘enquiry’ letters from the ‘shadow economy’ team run jointly by the tax and VAT departments of HM Revenue & Customs. But in our experience there was very little guidance available on how to deal with these issues – and what was available was often inaccurate or incomplete. Major booksellers have shelves with an amazing selection of books on eBay trading. But, having reviewed all of these we found one half page (in just one book) dealing with records keeping and tax. There was no mention of VAT registration, at all! Therefore we aim here to provide an authoritative selection of guidance to eBay, Amazon and other Online Traders below.
HOW DO WE CALCULATE YOUR TAX LIABILITY (AND HOW CAN WE MINIMISE IT?)
If you are just selling personal possessions and items from your attic there is no need to register as a business. However, as soon as you buy items to sell them for profit you are deemed to be trading. If you buy and sell just a few items in the year your trading ‘gross’ profit may be covered by expenses and the authorities would not be too interested. However, once you ‘buy to sell’ more than a few items you will hopefully have made some level of profit and you should start keeping records and paying tax on any profits you make. As soon as you “buy to sell” (other than possibly an odd item or two) this is a business and it is important that you notify the authorities within three months of commencing trading, otherwise you may be liable to a penalty.
Self Employed people are also liable to pay Class 2 National Insurance Contributions. Exemption (exception) from these ‘dues’ can be claimed if your expected level of ‘profits’ is below a certain amount per annum. If you are an eBay trader and you also sell a few personal possessions you should keep records identifying these items but you do not need to pay tax on any profits made.
Your profits are determined annually. Start, by totalling your dealing profits less postage costs and eBay / Paypal costs. From this can be deducted the obvious business related overheads such as telephone costs, travelling costs, advertising, internet subscriptions, stationery, etc. Deductions can also be made for a proportion of your motoring costs, depreciation of equipment and a contribution towards household expenses. You may even be able to claim for wages paid to people who help you with the business. There are, of course limits and guidelines as to how much you can claim. An experienced accountant can usually provide very cost effective advice to help you to legally minimise your declarable profits.
HOW MUCH TAX SHOULD I EXPECT TO PAY?
If online trading is your only taxable income then you will pay NI on annual profits over the NI threshold and tax on annual profits over your personal allowance. Higher profits attract 40% or 45% tax but just 2% National Insurance. If online trading is extra to your PAYE salary you still pay Class 2 and Class 4 National Insurance (subject to an overall contribution ceiling). Your tax liability is calculated by adding together your salary and your profits, and taking off any PAYE tax you suffered in your employment in the relevant tax year.
We can provide you with an estimate of your tax liability as your trading year progresses and will advise you about saving towards your liabilities with advice about the normal tax payment dates.
SHOULD I TRADE THROUGH A LIMITED COMPANY?
There are a number of reasons why you might chose to trade through a limited company. Fuller details are shown on our main website pages under ‘business information’. As a general guide though we recommend considering ‘going limited’ if your profits from online trading exceed say £20,000 per year (assuming you have no other income). If you have other sources of income such as a PAYE salary the benefits of ‘going limited’ can come in at lower levels of profit. Many clients prefer using a limited company if they sell products which might occasionally generate product liabaility claims.
ADVICE ABOUT VAT REGISTRATION FOR LARGER BUSINESSES (AND WHETHER YOU CAN AVOID IT)
You must register for VAT when the value of your taxable supplies exceeds the registration threshold. If the value of your taxable supplies in the past 12 months (or less) has exceeded the current VAT registration threshold or the value of your taxable supplies in the next 30 days alone is expected to exceed this figure. Beware, the registration test is assessed on a rolling twelve month basis.
Our ‘top tip‘ is to be aware that your turnover on Amazon is the total amount the customer pays Amazon for your product and postage and packaging. It is not (as many believe) the amount your business receives from Amazon after their commission and fulfillment charges.
Registration (within one month) is compulsory once you have exceeded the threshold. Late registration can result in a belated notification penalty (which may just be a nominal amount if you act promptly).
Segregation (splitting) of your business activities is usually ineffective once the VAT officers are looking at your affairs.
Call us for detailed advice about VAT registrations, business segregations, late registrations, and explanations of the financial impact of being VAT registered.
BOOKKEEPING RECORDS (ADVICE ON WHAT RECORDS YOU MUST KEEP)
Ideally, you would use our Kashflow online bookkeeping software (visit our bookkeeping page for a video demonstration). There are numerous advantages to this software but one particular advantage for online traders is that Kashflow can easily link with your Paypal account. So that all your Paypal transactions can be imported automatically, minimising the bookkeeping work you have to complete. If you would prefer to prepare your bookkeeping in an analysis book or spreadsheet, we can work with you to ensure your bookkeeping is effective. We have devised templates to help Amazon businesses summarise transactions from their eSeller Central account to incorporate seamlessly in Kashflow or other records.
In either case you do need to regularly print out certain details and keep them, as a requirement from HMRC. For example, you will need to print out or export monthly reports detailing items you’ve sold and the fees and Paypal charges incurred. In addition, you should keep detailed records of and receipts for all expenditure on goods purchased and all business expenses and overheads.
Important Disclaimer. This website has been prepared for general interest. It is important to take professional advice on specific issues. We believe the information contained to be correct as at June 2018. Whilst all possible care has been taken in the preparation of this information, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the material contained herein can be accepted by the firm, the authors or publishers. © Hanley & Co.