Providing your services over the internet is a must nowadays. With everyone switching to digital ways of working, buying and selling, it’s no surprise that eCommerce businesses are doing so well.
The COVID-19 pandemic accelerated this trend even further, with online shopping bringing millions of pounds into the eCommerce market.
According to the ONS, internet sales as a percentage of total retail sales have seen a steady increase in recent years, peaking at 37.8% in January 2021 – and while they’ve dropped since then, they’re still higher than pre-2020 levels.
That said, establishing yourself as an online retailer comes with its own rules and responsibilities, and you need to be aware of your tax obligations.
What taxes do I have to pay?
When running an online business, you will need to register for tax. If you’re self-employed, you must submit self-assessment tax returns to HMRC and disclose any income and expenditure.
If you’re selling things regularly online, including using platforms like eBay, this could be a business to HMRC even if you already have a job.
You will start to pay tax once you surpass the Government-set threshold of £1,000.
If you operate as a sole trader, you’ll be liable to pay income tax, and if you registered as a company, you’d need to pay corporation tax once you’ve surpassed the threshold.
If your annual income exceeds £85,000, you’ll need to register for VAT. This means you’ll have to file a yearly VAT return with HMRC via software that’s compatible with Making Tax Digital (MTD).
This year, the Government has been consulting about introducing an online sales tax. As high-street retailers pay a large sum in business rates, the Government is looking into ways to share the load and start charging online retailers more.
Brexit and VAT
Now the UK is outside of the EU, there are different tax treatments for goods imported or exported outside of the country.
Before, EU and non-EU retailers selling goods online were exempt from import VAT if the item’s value was less than €22. Now, all goods are subject to the import VAT of that EU country.
Businesses can register in any EU member state, and once registered, will then report and pay the collected VAT for each EU country every month via the one-stop import shop (IOSS). The IOSS can only be used for consignments of €150 or less.
As a UK-based online retailer, you’ll have to appoint an intermediary for IOSS to act on your behalf.
If you’re selling through your website, you will need to apply variable VAT rates depending on your exporting country. When trading through Amazon or Etsy, you can check with the chosen marketplace to see how these rules will affect you.
What tools can I use?
Thankfully, many software packages are on the market to help your eCommerce business thrive and remain compliant with HMRC.
Many cloud accounting tools let you integrate with your eCommerce platform, so you’ll see live sales pull through into your accounting software.
QuickBooks and Xero are just two examples of cloud-based accounting software which are MTD-compatible. If you’re paying VAT, then your VAT returns can be completed through your cloud software and sent directly to HMRC, saving you a lot of time.
Cloud accounting can also be helpful for inventory tracking as it will deduct any sales from your current stock. This means you can keep an eye on your cashflow and know when you may need to restock.
Get in touch
The business world is ever-changing, so having reliable experts by your side will give you the support you need to ensure your online business thrives. We’re are on hand to answer any questions you may have.