Accounting Guide for Amazon Sellers

May 30, 2024

If you’re someone who sells on Amazon, you’ve probably noticed by now that Amazon sellers make up a major part of online retail sales worldwide, showing just how big the platform is.

Research has revealed that smart money management can boost Amazon sellers’ profits by up to 15%. This shows how important it is to have solid Amazon seller accounting practices in place.

When it comes to taxes, many Amazon sellers struggle to keep up with the rules and regulations. By using accounting tools designed for online businesses, sellers can handle their taxes more easily.

Cloud accounting solutions are becoming increasingly popular among Amazon sellers because of their ease of use and flexibility. Surveys show that in 2021, approximately 50% of sellers relied on cloud-based accounting software to manage their finances efficiently and securely. In 2023, the percentage has now exceeded 60%.

What is accounting for Amazon sellers?

For anyone who sells online for a living, including an Amazon seller, accounting is an important aspect of your business processes.

When you’re selling products on Amazon, there are accounting aspects to handle. This means keeping track of all the financial bits – like recording, analysing, and managing everything related to your online sales.

To break it down further, you’ll need to do tasks like match up your bank statements with the cash Amazon sends you, juggle your cash flow, and get your financial statements to match up. Think income statements, balance sheets, and cash flow statements – they’re all part of the accounting routine when you’re selling your goods through the platform.

A good accountant can help you understand your financial health, increase profitability, and comply with tax regulations.

Accounting services for Amazon sellers

E-commerce can be hard to get the hang of, especially when balancing inventory management, customer service, and marketing. This is where specialised accounting services for Amazon sellers come in. These tailored approaches are designed to cater specifically to the unique needs of online retailers.

Making the most out of specialised accounting services can save you a lot of time. Check out what accounting services might help:

  • Bookkeeping for Amazon sellers: Regular recording of financial transactions for accurate financial records.
  • Tax Planning and Compliance: Assisting with tax strategies, preparation, and filing for compliance with local and international tax laws.
  • Inventory Management: Tracking and managing inventory to optimise stock levels and reduce holding costs.
  • Financial Reporting: Generating accurate financial statements and reports to give you a clear picture of your business performance.
  • Sales Tax Compliance: Managing and remitting sales tax to different jurisdictions.
  • Cost Analysis and Budgeting: Helping to analyse costs and create budgets to improve profitability.
  • Payroll Services: Managing payroll processes to ensure timely and accurate payments to employees.
  • Account Reconciliation: Ensuring that all accounts are reconciled, and discrepancies are addressed promptly.
  • Consulting and Advisory Services: Providing expert advice on financial strategies to help grow the business.

Why is accounting for Amazon sellers important?

Amazon accounting is important to ensure that everything is accurately recorded, paid, tracked, and taxes are paid on time and correctly. It helps you keep track of your inventory, sales, and expenses, avoiding financial discrepancies or stock shortages. If that’s ever the case, you can quickly identify and rectify any issues.

To avoid penalties, fines, and reputational damage, you must pay your taxes. An accountant can also help you claim some tax relief if eligible. For more information on tax relief, check out our What is tax relief and how to claim it” article for a comprehensive guide.

Do Amazon sellers have to be VAT registered?

Needing to be VAT registered as an Amazon seller in the UK depends on the annual turnover amount. If your annual turnover exceeds the VAT threshold, currently set at £85,000, registration becomes mandatory. This threshold includes all sales made within a 12-month rolling period, meaning it’s not limited to a specific calendar year but can be any consecutive 12 months. You should keep close track of your sales to ensure compliance as soon as they approach this limit.

If you sell to other VAT-registered businesses, import goods into the UK, or you’re based outside of the UK but sell goods to UK consumers, you might need to register for VAT.

To register for a VAT number, you can complete the process online via the HMRC website. All you need to do is provide information about your business and its activities and after that, you will be issued a VAT number that must be included on all invoices. Once you have that number, you’ll be required to submit regular VAT returns and payments to HMRC. For guidance on how to complete a VAT return, please refer to our guide.

What is important to make records of as an Amazon seller?

As an Amazon seller, proper documentation not only helps in tracking performance but also certifies you’re compliant with tax regulations and other legal requirements.

Here are some aspects every online seller should monitor:

Costs and Fees

A detailed account of all costs and fees will help you manage your money. These can include:

  • Amazon Seller Fees: These fees vary depending on the category of products you’re selling and the type of seller account you have.
  • Advertising Costs: Expenses related to Amazon Sponsored Products, Sponsored Brands, or external advertising should be recorded to evaluate the effectiveness of your marketing strategy.
  • Postage Costs: Shipping fees can add up quickly, whether you’re using Amazon’s Fulfilment by Amazon (FBA) service or handling shipping yourself.
  • Warehouse/Storage Costs: If you’re using FBA, Amazon charges for storage space, especially for items stored for long periods.
  • Commission Costs: Amazon takes a percentage of each sale as a referral fee, and these should be tracked to understand the overall cost of selling on the platform.

Income and Profit

Tracking your income and profit shows you the viability of your business. This involves:

  • Gross Income: The total revenue generated from sales before any expenses are deducted.
  • Net Profit: The remaining profit after all costs and fees have been subtracted from your gross income.
  • Tax Documentation: Accurate records of income and profit are essential for calculating the correct amount of tax owed.

Inventory Management

Efficient inventory management ensures that you can meet customer demand without incurring unnecessary storage costs. Track:

  • Stock Levels: Monitor the quantity of each product you have in stock to prevent overstocking or stockouts.
  • Inventory Turnover Rate: This shows how quickly your inventory is selling, which can inform purchasing decisions and marketing strategies.
  • Reorder Points: Establishing reorder points for each product ensures you reorder stock before running out, maintaining a steady supply chain.

Customer Feedback and Reviews

Customer feedback will tell you exactly how to improve your products and services. Record:

  • Customer Reviews: Analyse the feedback for trends or recurring issues that need addressing.
  • Return Rates: A high return rate can indicate problems with product quality or fulfilment processes.
  • Customer Service Interactions: Keeping a log of inquiries and complaints can help in identifying areas for improvement.

Sales Metrics

Sales metrics give you insights into the performance of your products and marketing strategies. Key metrics include:

  • Sales Volume: The number of units sold over a specific period.
  • Sales Revenue: The total income from sales before any deductions.
  • Conversion Rates: The percentage of visitors who make a purchase.

Market Trends and Competitor Analysis

If you stay informed about market trends and competitor activities, you’ll always be one step ahead of the competition. Monitor:

  • Price Changes: Keep an eye on competitor pricing to ensure your products remain competitively priced.
  • New Product Launches: Stay updated on new product releases in your niche to identify potential opportunities or threats.
  • Market Demand: Understanding shifts in consumer demand can help you adjust your product offerings accordingly.

Do I need an accountant as an Amazon seller?

As an Amazon seller, hiring an accountant is not a strict requirement, but it can make managing your business’s finances much easier and more efficient. An accountant’s professional expertise can free up your time, allowing you to focus more on core business activities like sourcing products, marketing, and customer service.

Experienced accountants will help your business thrive. They can offer strategic advice on cost management, tax planning, and financial forecasting, which are essential for making informed business decisions. By identifying potential tax deductions and credits, an accountant can also help you save money and improve your overall profitability.

Even though hiring an accountant involves an additional expense, the benefits in terms of time savings, financial accuracy, and business growth often outweigh the costs.

Why Choose Accounting Software as an Amazon Seller?

Accounting software is designed to be user-friendly, even for those who may not have a background in finance. Its easy-to-navigate interfaces and guides, simplify complex accounting tasks, and reduce the likelihood of human error.

The software streamlines workflows – no need for external services – and aids in efficient resource allocation, automated invoicing, payment reminders, real-time financial insights for cash flow, payment process, and plans for future expenses and investments.

To address stockouts and overstocks, inventory management tools for tracking stock levels, reorders, and demand forecasting are also available.

Hire an expert

Choosing the right accounting partner is crucial for Amazon sellers due to e-commerce tax complexities. A specialised e-commerce accountant understands unique challenges like sales tax nexus and international VAT.

Why choose CloudAccountant.co.uk?

Hiring expert e-commerce accountants like us can help you avoid a lot of headaches. At CloudAccountant.co.uk, we can ensure you have everything up-to-date and capitalise on all the tax relief you are legally entitled to. Our team works with software such as Xero, LinkMyBooks, and a2x to ensure that your financial data is accurate, organised, and easily accessible. With these tools, we will handle your bookkeeping, tax preparation, and financial reporting.

To get started, we will start by asking a few questions on VAT registration, bookkeeping and self-assessment requirements. Once we have all of the information for your no-obligation quote, and if you’re happy with everything, we will then get the ball rolling. All we require is your passport ID and proof of address.

The best part is you only pay for the services you need, and you can scale your package to match your business growth without compromising accuracy or performance. To learn more about how we can help, check out how our online sellers package.

Get in touch!

Need more information on accounting for Amazon sellers in the UK? If you’d like some free, impartial advice on how we can proactively help your online business, you can contact us by emailing info@cloudaccountant.co.uk, calling us on 01625 546232, or simply filling in the enquiry form below.