E-Commerce accounting is actually unique and has challenges that accounting for other businesses doesn’t have. Here’s why……
VAT and GST
You might not be selling outside the UK but selling online is not limited by international borders so there’s every chance that you are selling in other territories. That means you need to deal with the added complexities of international VAT in the EU or GST (Goods & Service Tax) outside of the EU. You will potentially need to register for VAT/GST in every country that you serve, all with different rules and rates. Within the EU you have distance selling thresholds that require VAT registrations once you hit varying thresholds and automatic registration requirements if you store goods in another country (typically using Amazon FBA services). In the USA every State has its own rules, rates, and thresholds and the same principals apply if you store goods in any State.
For the multi-channel business, inventory management is extremely complex if you don’t have the right systems in place. You have stock in production, in transit, in warehouses (possibly 3rd parties – Amazon FBA again being the most likely), and in a returns pile. Complexity increases with the number of SKUs, countries, and marketplaces. A scalable, integrated, and automated inventory management system is essential not just for managing your inventory and orders, but also for accurate data for decision making.
If you sell on marketplaces you will incur additional fees and quite hefty ones at that. Managing your margins is therefore critical and management reporting can help you with this. In terms of the mechanics of accounting, often marketplaces will send you a net remittance, after deducting fees. The cash received in your bank account does not, therefore, represent the turnover of the business and there are different VAT treatments that will apply to the constituent elements of that receipt. This can still apply to transactions on your own website if you use a payment facilitator like Stripe, which deducts fees from its remittances to you.
This can be a real headache, especially for Amazon sellers, as customers can return goods with little justification. You will need to differentiate between damaged goods and goods that can be booked back into stock and re-sold.
This is why you need a specialist accountant like Elver E-Commerce Accountants. If you would like to know how we can help your business give us a call on 01942 725419.