How long is a piece of string? Amazon is used by sellers of all sizes, from people who work full-time selling products on Amazon to people who use Amazon selling as a second or third income stream. As ever with all sales platforms, it is essential to understand the costs of selling, which will also vary depending on how you choose to sell. According to Amazon’s latest UK Impact Report, more than 15,000 UK businesses surpassed £100,000 in sales in 2021, and 700 reached £1M in sales through Amazon for the first time. Figures also show that SMEs generated over £400m in sales in 2021. Using Amazon effectively can be an excellent potential addition to your existing income streams or as a standalone enterprise.

Types of Amazon Sellers

There are different ways to utilise the Amazon platform. You can list your products on the platform and then fulfil the orders yourself. This will mean you have to physically store the products and take care of the picking, packing, and postage yourself. This option is referred to as Fulfilled by Merchant (FBM). Alternatively, you can use Amazon’s FBA (Fulfilled By Amazon) service. This is where Amazon holds the products for you and takes care of all the shipping processes, leaving you to concentrate on the actual selling. Obviously, FBA incurs more significant fees, but you may find that this is the best fit for your business.

Factors Influencing Amazon Seller Earnings

Choosing what to sell, understanding your fees and the cost of selling, and setting sensible price points will all affect how much you can make on Amazon. Selling into a saturated market will limit your earning potential, as will failing to calculate the cost of a sale correctly. Amazon is a global marketplace, and ensuring your product visibility will help increase your sales potential. You must consider your marketing budget when planning your Amazon sales business plan.

Calculating Profits and Costs From Amazon Sales

Every item that you sell on Amazon will incur costs. These costs will be in sellers’ fees and in the price of postage and packaging. If you use FBA, the postage and packaging charges will be incorporated into your fulfilment fees. These costs need to be deducted from the sale price. Other business costs such as internet and other general office supplies also need to be deducted. You may find that your profit margin varies across products, so it is worth calculating both individual and overall profit margins.

Legal and Tax Considerations When Selling Through Amazon

You must be VAT registered if you are turning over more than £85,000 a year. This will add another level of complexity to your business. Always seek professional advice when nearing the VAT threshold, as ensuring your VAT is correctly collected and paid to HMRC is a legal requirement. It’s important to note that Amazon’s fees (apart from advertising) are billed from Luxembourg. The implication for a UK Amazon seller is that the fees are subject to the reverse-charge mechanism. Whilst there are implications for a UK seller’s VAT return, the key to highlight here is that these charges also count towards the VAT registration threshold. For example, a seller who has made £65,000 in UK sales but had £20,000 of FBA and selling fees deducted would have hit the UK VAT registration threshold of £85,000.

If you are selling products, such as electronics, ensure that you follow any applicable laws. As a UK seller, you will be subject to the normal terms of Trading Standards, ensuring that sellers do not misrepresent the products they sell. Trading Standards also cover standard return policies. The government’s website details the UK’s law around returns and trading standards. As Amazon is a global platform, you may sell your products overseas. Selling internationally can bring further challenges to the tax position of your sales, as your sales may be subjected to another country’s tax. In many jurisdictions, Amazon will be responsible for remitting sales tax, which is deducted from your settlements to the local authorities. Tax positions on export and import can be complex, and it is wise to seek professional advice so that you do not fall foul of any international tax regulations.

Start Selling on Amazon Today

Good accounting is a must whether you are looking at adding Amazon as an income stream to your business or are starting a new business. Many start-up businesses fail within the first year, often due to poor financial management, lack of planning, and cash flow issues. Good accounting will help to build long-term business forecasts, set feasible price points and maintain healthy profit margins. Here at Elver E-Commerce, we are accounting e-commerce specialists. We work with many businesses nationwide to ensure that the accounting aspect of their online sales is correctly and efficiently handled. Our proactive approach to accounting means that we work with you throughout the year, not just at the year-end. To learn more about how we can help you, visit our Amazon Accountant page.