If you sell on eBay, the first question is not how much tax you owe but whether you owe any — and since 2024 HMRC has had the data to ask. As accountants for eBay sellers we deal with both ends: people selling a few hundred items a year who are unsure where they stand, and established eBay businesses that need proper accounts and VAT returns.

Hobby or trading

Clearing out your own possessions is not trading, even if you sell a lot of them. Buying items in order to resell them, making goods to sell, or selling regularly in an organised way usually is. HMRC weighs the whole pattern: how often you sell, whether you bought with resale in mind, and whether you are aiming for a profit. If you are trading, the first £1,000 of gross trading income each tax year is covered by the trading allowance. Above that you register for Self Assessment and deduct either the allowance or your actual expenses — not both.

What eBay reports to HMRC

Under the platform reporting rules in force since 1 January 2024, eBay reports sellers to HMRC with identity details and the amounts received. A seller is left out only if they make fewer than 30 sales and receive less than €2,000 (about £1,700) in the calendar year, so reaching either figure is enough to be reported; the first reports, for 2024, went to HMRC by 31 January 2025. Being reported does not mean you owe tax — someone clearing a loft can pass 30 sales easily. Staying under the reporting threshold does not make trading income tax-free either. Hobby versus trading, and the £1,000 allowance, still decide the tax.

Fees, postage, stock and returns

eBay pays you after taking final value fees, promoted listing costs and other charges, so the payout is not your turnover. Record the gross sale, then claim the fees as expenses alongside postage and packaging, the cost of the items you sold, and a fair share of costs such as your phone and internet. Returns reverse the sale they relate to, and stock you have bought but not yet sold is carried forward rather than claimed this year.

The VAT threshold for eBay sellers

Once your gross eBay sales, plus any other taxable sales, pass £90,000 in any rolling twelve months, you must register for VAT. If you resell second-hand goods, the margin scheme can mean VAT is charged only on your margin rather than the full selling price — for many eBay resellers that is the difference between a workable business and an unworkable one, and it needs the right records from the day you buy.

Amazon sellers face the same principles with more layers. Each settlement report nets together sales, referral fees, Fulfilment by Amazon charges, storage, advertising, refunds, reimbursements and reserves. We reconcile every settlement to the payout that reached your bank, so each line lands in the right place in the accounts.

FBA fees and inventory

FBA fulfilment fees, storage charges and inbound shipping are all allowable, but they need recording as separate lines so you can see what fulfilment costs per unit. Stock held in Amazon’s warehouses is still your stock and has to be counted at the year end; the inventory report from Seller Central is the starting point, adjusted for units Amazon has lost, damaged or reimbursed.

Reimbursements are income

When Amazon reimburses you for lost or damaged inventory, that money belongs in the accounts, not in a gap between the settlement and the bank. Customer refunds reverse the original sale. The settlement report shows both, which is exactly why posting only the net payout loses them.

VAT on marketplace sales, briefly

If you are a UK seller selling UK-held stock, VAT works in the ordinary way: once registered, you account for it. The rules that treat Amazon as the deemed supplier apply mainly to overseas sellers and to low-value goods imported into the UK. A UK-established seller should not assume Amazon is dealing with their VAT.

• VAT services
• Bookkeeping services
• Starting an online selling business
• VAT: a summary

You must register for VAT once your taxable turnover passes the threshold on any rolling twelve-month basis. Turnover means gross sales — the price the customer paid — not the payout after the platform has taken its cut. Sellers who track the bank balance instead of the sales report routinely discover they crossed the line months earlier, and by then the VAT is due on sales where no VAT was collected.

We monitor the rolling figure so registration happens on time, and we look at whether a flat-rate scheme or standard accounting suits your margins better before you commit.

For sales to EU consumers, the One Stop Shop lets you report the VAT of every member state through a single return rather than registering in each one. Below the consignment threshold, Import One Stop Shop handles goods sent from outside the EU. Where you hold stock matters too: storing inventory in an overseas fulfilment centre generally creates a registration obligation in that country regardless of the schemes.

• OSS and IOSS registration and returns
• Marketplace deemed-supplier rules — when the platform owes the VAT, not you
• Import VAT and postponed accounting
• Overseas stock holdings and where they create a registration

Most sellers can tell you their revenue and very few can tell you their contribution per unit after fees, returns, advertising and shipping. That number decides which products are worth restocking. We set the bookkeeping up so it falls out of the accounts every month instead of needing a spreadsheet exercise once a year.

For a lot of sales, Amazon and eBay are treated as the supplier rather than you — the marketplace collects and pays the VAT, and your settlement shows the sale net of a tax you never handled.

That is fine until it reaches your VAT return, where those sales are accounted for differently from the ones you made directly. Treat a settlement as one lump of income and the return is wrong in both directions: output tax overstated on sales the platform already paid, and understated on the ones it did not.

The settlement report has the detail. It has to be unpacked rather than posted as a single figure, and doing that monthly is a fraction of the work of doing it once a year.

Digital platforms now report seller data to HMRC directly — identity, account details and the value of sales made through them. It is sent automatically and it arrives whether or not anything has been declared.

For a properly declared business this changes nothing. For anyone who has treated online selling as informal, it is the reason the letters have started arriving. If there is a gap, closing it voluntarily costs a great deal less than being asked about it — the penalty for an unprompted disclosure is far lower than for a prompted one.

• VAT accountant in Enfield
• Start-ups and new companies

This is the characteristic failure of a growing online seller, and it surprises people because both halves are true simultaneously. The business is genuinely making money and genuinely cannot pay for anything.

Stock is not an expense when you buy it

Buying stock takes cash out immediately, but for profit purposes the cost is recognised when the item sells, not when it arrives. So a seller who doubles their stock holding to keep up with demand has spent the money and has not reduced their taxable profit by a penny of it. The profit is real, the tax on it is real, and the cash is sitting in a warehouse.

Which is why the tax bill can feel impossible

The faster you grow, the worse this gets, because every additional pound of profit is being reinvested in inventory before the tax on it falls due. There is nothing wrong with the accounts — the answer is to forecast the tax alongside the stock purchasing rather than discovering the conflict when both are due. That is a planning problem, and it is solvable, but only in advance.

Returns and refunds belong in the numbers

A high return rate distorts everything if refunds are treated as a cost rather than as a reversal of the sale. Turnover is overstated, margin looks better than it is, and the VAT position can be wrong in your own favour — which is the direction that gets noticed. Record the refund against the original sale, including the VAT, and the picture stays honest.

Know your margin per channel, not overall

Different marketplaces charge different fees, and shipping costs vary by product and destination. An overall margin can be perfectly healthy while one channel or one product line loses money on every order. Sellers routinely discover this only when they stop and look, and it is usually the single most valuable half hour available to them.

The services we provide for online sellers include year-end accounts and corporation tax and business start-up. Each has its own page with what is included and how we work.