E-commerce Sellers: Limited Company Tax and VAT Essentials

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: An e-commerce company pays Corporation Tax on its profits, must register for VAT once taxable sales exceed £90,000, and needs to record stock, marketplace fees and returns carefully. Selling through Amazon, eBay or Shopify, importing goods and shipping overseas bring extra VAT, customs and reporting rules.

Key facts

Corporation Tax	19% to 25%
VAT threshold	£90,000
Marketplace reporting	Platforms report seller income to HMRC
Stock	Valued at lower of cost and net realisable value
Imports	Customs duty and import VAT apply

Why e-commerce sellers use limited companies

Online sellers often start as sole traders, using a hobby income or the £1,000 trading allowance, and move into a limited company as sales grow. A company provides limited liability, which matters when selling physical products that could cause claims. It also helps with credibility with suppliers and marketplaces, and gives scope to retain profits for stock and growth.

Because e-commerce involves stock, cash flow and marketplace fees, accurate bookkeeping and tax planning are especially important. Many sellers find that profit on paper differs a lot from cash in the bank, because money is tied up in stock.

Corporation Tax and profit

The company pays Corporation Tax on profit, which is sales minus the cost of goods sold, marketplace fees, advertising, shipping, software and other allowable costs. The rate is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between.

Profit is calculated on an accruals basis, so it includes sales invoiced and costs incurred during the year, not just cash received and paid. Stock bought but unsold at year end is not a cost of the year, so a stock count and valuation are needed. Sellers who ignore this overstate their costs and understate their tax.

VAT registration and rules

You must register for VAT when your taxable turnover exceeds £90,000 over any rolling 12 months. Many sellers register earlier, voluntarily, to reclaim VAT on stock and costs and to look more established. Once registered, you charge VAT on sales, reclaim input VAT on purchases and file returns using Making Tax Digital software.

Marketplaces such as Amazon and eBay can affect VAT. For some overseas sellers, the marketplace is responsible for collecting VAT. For UK sellers, you still account for UK VAT on your sales. Keep detailed sales reports, because VAT returns must match your records.

Imports, customs and overseas sales

Importing goods from outside the UK involves customs duty, import VAT and paperwork. Postponed VAT accounting lets you declare import VAT on your VAT return instead of paying at the border, which helps cash flow. Duty rates depend on the product and the country, and you need the correct commodity codes.

Selling to overseas customers can create VAT obligations in other countries once you pass local thresholds, and the EU has its own rules for distance sales. If you plan to sell abroad, take advice before shipping, to avoid being caught out by foreign VAT registration.

Stock, returns and valuation

Stock is a key figure in e-commerce accounts. You record the stock you hold at the year end at the lower of cost and net realisable value, and the cost of goods sold is purchases plus opening stock minus closing stock. Returns, refunds and damaged goods should be recorded properly, with the correct VAT treatment.

Use inventory tools that connect to your accounting software, and perform stock counts at least at year end. Accurate stock records improve profit reporting and help avoid cash flow surprises.

Marketplace fees, advertising and expenses

Allowable expenses for sellers include marketplace and payment fees, advertising, packaging, postage and courier costs, storage and fulfilment, software, photography and a share of home or warehouse costs. Keep invoices from each platform, and reconcile the payouts you receive against sales reports, because marketplaces deduct fees and refunds before paying you.

Reconciling payouts is one of the most time-consuming jobs for sellers, and a common source of errors. Specialist tools can import the data and match it to your accounts.

Platform reporting and HMRC visibility

Digital platforms must now report seller income to HMRC under international rules, so HMRC can see how much sellers earn online. That means mismatches between your tax return and the platform data are easily spotted. Make sure your records match what the platform reports, and declare all income.

If you have been trading informally without declaring income, take advice about correcting the position. A voluntary disclosure is better than waiting for HMRC to contact you.

Getting profit out and planning for growth

As with other companies, you can take money out through salary, dividends and pension contributions. Retained profit can fund stock and growth, which suits e-commerce, where you often need to reinvest. Plan cash flow carefully, setting aside money for Corporation Tax, VAT and upcoming stock purchases.

As the business grows, consider whether to use a fulfilment service, expand abroad or add a payroll function. A regular review with your accountant keeps your structure aligned with the business.

Choosing when to incorporate an online shop

Many online sellers start as sole traders and incorporate once profit grows or once the risks of unlimited liability become uncomfortable. A company separates your personal assets from product liability, supplier contracts and platform disputes, and it can look more credible to wholesalers and marketplaces. Tax is the other driver: once profit is well above personal needs, a company allows lower corporation tax rates and the choice of when to take dividends. A sensible approach is to review the numbers each year with your accountant, rather than waiting for an arbitrary turnover figure.

Stock, cost of goods and year-end accounting

Sellers must value closing stock at the end of each accounting period, because unsold stock is not an expense in that year. The cost of goods sold, plus shipping, packaging, marketplace fees and advertising, are deducted from sales to arrive at profit. Keep supplier invoices, customs documents and platform statements, and reconcile them against your bank every month. Returns, refunds and write-offs also need recording. Accurate stock records reduce the risk of overstating profit, which would mean paying tax on money you have not actually earned, and they support any VAT claims on imports.

Marketplace reports and reconciliation

Platforms such as Amazon, eBay and Etsy provide detailed settlement reports showing sales, fees, refunds and payouts. Payouts rarely match sales, because fees and reserves are deducted first, so record gross sales and fees separately rather than just the net deposit. Reconcile each report to your bookkeeping software monthly, and keep a clear audit trail from order to bank. HMRC and platforms increasingly share seller data, so your records should always agree with what the marketplaces report.

Frequently asked questions

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