If you are thinking of selling on Amazon, you may be wondering if you need to set up a limited company in order to do so. The short answer is “no”, but as with many things, the answer is actually more complex than that. Legally, you can sell on Amazon as a private individual, a sole trader, or limited company. Remember that you can earn up to £1000 from your hobby or side hustle before you need to declare the income to HMRC. But once you earn over that threshold, you must declare the income, even if you already pay tax on an employed job.
Understanding the Basics of Amazon Business
You can sell under Amazon’s Basic Selling Plan, also referred to as an Individual, which allows you to sell up to 35 products a month, or on a Professional Selling Plan which allows you to sell unlimited products. Different costs apply to each package. It is advisable to consider your future plans when you set up your Amazon sellers account, as changing from a sole trader to a limited company can be challenging, though it is simple to swap between the Basic Selling Plan and the Professional Selling Plan.
Selling on Amazon as an Individual
You can sell as an individual on either of the Amazon’s business packages. Simply register for your preferred Amazon business plan, and remember to keep a record of your transactions. You will be asked to verify your identity, but you will be prompted to do this during the setup process. Amazon takes their fees at source and releases funds to you with the fees deducted. Remember to keep records of all the transactions, and all the costs associated with your selling so that you pay the correct tax on your profit.
Selling on Amazon as a Company
Similar to selling as an individual, or sole trader, you will need to verify the identity of your company when you set up your seller’s account. Follow the setup instructions carefully to ensure that your Amazon business account is set up correctly from the beginning.
Legal and Tax Considerations
There are both legal and tax implications around your decision. If you are registered as a limited company, then you, as an individual, have a degree of protection from the business’s liabilities. The tax that you will pay varies from a sole trader to a limited company. As a sole trader, you will be paying 20% to 45% tax on any profit that you make, plus national insurance. As a limited company, you will be paying 19% to 25% corporation tax, and you can then pay yourself using a combination of dividends and salary which can be financially beneficial, dividends are taxed at a rate between 8.75% and 39.35%. It is always sensible to seek professional advice on the best setup for you, though bear in mind that trying to change from a sole trader to a limited company on your Amazon business seller’s account can be tricky.
Company Branding and Trust
Money invested in branding will be worthwhile. Consumers are brand loyal. If they like a brand, they will seek out that brand again, recommend it to their friends, and act as your loyal marketing team. If you set yourself up as a limited company, make sure you create a good logo and memorable company name that reflects what you do. As consumers, we trust brands that appear reputable, if you are UK-based, promote this, as many people will choose to support small UK-based businesses, even if their prices are higher.
Scaling Your Ecommerce Business
It can be hard to foresee how much your business will grow, but working with a professional and experienced accountant can help with financial planning. An Amazon business is very scalable, but equally can be successfully kept as a small side enterprise that runs alongside another company. It is worth considering what your aims and ambitions are for your Amazon business. If you intend to grow your company, it might be wise to set it up as a limited company from the beginning. However, being able to dip your toe in the water and see how it goes can be useful for many people, and trading as a sole trader allows you to do this without the expense of forming and maintaining a limited company.
Risk and Liability
One important thing to remember is that as a sole trader, you are personally liable, whereas if you are registered as a limited company then your company is liable, not you personally. Again, it is sensible to discuss the risks for your business, which will help in making the best decision for your setup.
Become a UK Amazon Seller and Build Your Online Business Today
Setting up an Amazon business in order to sell on Amazon can be an excellent business decision for many people. Whether you are already selling through your own website, and want to increase your opportunity for sales across other channels, or you are just starting out looking at selling on Amazon, perhaps you already sell on Amazon but are looking at scaling up and want some advice, whatever your situation, we can help. Our knowledgeable accountants are experienced with Amazon and are well-placed to give you considered and helpful advice. If you want to learn more about working with the team at Elver E-commerce, then head over to our Amazon Accountants page to read more.