What Are the UK Tax Rules for eCommerce Businesses?
The Ultimate Guide to Ecommerce Taxes in the UK
If you run an eCommerce business in the UK, you must be aware of UK tax rules. Knowing all the regulations is crucial for growing your business and ensuring uninterrupted operations. Familiarising yourself with relevant taxes is crucial for you to avoid penalties.
Here, we will delve deeper into eCommerce taxes in the UK. Whether you are a UK-based online store or looking to expand into the UK, you will learn everything about UK taxes for eCommerce.
- Ecommerce businesses operating in the UK must know UK tax rules to avoid penalties.
- The main types of taxes that eCommerce businesses in the UK must pay are value-added tax (VAT), UK corporate tax, UK income tax, National Insurance (NI), and import duties and tariffs.
- Ecommerce companies are required to register for VAT if their annual turnover is more than £85,000.
- Thanks to working with a third-party fulfilment provider, businesses can save money on order fulfilment.
Types of UK taxes for eCommerce businesses
Below is an overview of various kinds of taxes businesses operating in the UK must pay.
Value-added tax (VAT)
Value-added tax (VAT) is a tax that is applied as an additional cost to goods and services. It is important to note that since it’s a general-based consumption tax, it is added to most kinds of products and services offered by businesses registered for VAT. However, there is a baseline that determines whether an eCommerce business must register. In the UK, you have to register for VAT if your annual turnover exceeds £85,000.
If a business charges VAT, it is typically included in the total price of an item rather than displayed separately. That means that if you sell a product priced at £15 with an additional £3 VAT, you should say the price is £18.
In the UK, there are three levels of VAT rates:
- The standard rate of 20% – applicable to most goods and services
- Reduced rate of 5% – applied to products related to energy, health and welfare
- Zero-rate – charged for products such as food, books and children’s clothes.
That said, the VAT rate you should charge for what you sell depends on the product type. Determining the right VAT rate can be challenging if you sell various things that fall into different categories. In these cases, eCommerce businesses must approach each item separately to ensure they charge the correct VAT rate on all of them.
UK corporate tax
Ecommerce businesses based in the UK or with a presence in the UK are generally subject to corporate tax on their profits. As of 2023, the corporate tax rate is set at 25%. This means that eCommerce businesses must pay 25% of their taxable profits to HM Revenue & Customs (HMRC).
The taxable profits are calculated by deducting allowable expenses and reliefs from the total income generated by the company. The 25% rate applies to companies with profits of at least £250,000. Smaller businesses with a turnover of up to £50,000 enjoy a lower rate of 19%.
If your eCommerce business is based in the UK but also operates in other countries, you must pay corporate tax on your worldwide profits. However, if you do not have a permanent establishment in the UK, you have to pay corporation tax in your country of incorporation instead. This is because corporation tax applies only to businesses registered within the UK.
UK income tax
As the name indicates, this tax is paid based on annual income. Have a look at the breakdown of UK income tax thresholds:
£12,571 to £50,270
£50,271 to £125,140
The above thresholds apply in England, Northern Ireland and Wales. Scotland has its own bands and rates.
National Insurance (NI) is a system of social security contributions. Ecommerce businesses must make NI contributions to help fund state-provided benefits such as the National Health Service (NHS) or state pensions.
Here are the current NI rates:
- 12% for employees who pay basic rate income tax
- An additional 2% for employees who pay a higher rate of income tax
- 13.8% for employers.
This means that if your eCommerce business employs workers, you must pay 13.8% of their earnings above the threshold in addition to their salaries.
Import duties and tariffs
If you’re an eCommerce business that imports goods from outside the UK and then sells them in the country, you must be aware of the import duties and tariffs you may be subject to. Import duties and tariffs are taxes levied on goods brought into the UK from countries that do not belong to the European Union (EU) or are not UK trade-agreement partners.
The purpose behind such taxes is to protect domestic industries from becoming less competitive due to imports. How much you will have to pay for duties and tariffs depends on the type of goods you are importing, their value and the country of origin. Regarding tariffs, they may take the form of a fixed amount per unit of goods or a percentage of the value of the goods.
To avoid losses in profits, remember to factor in the cost of import duties and tariffs when setting the prices of your products. To get assistance navigating the customs process and ensure you comply with all relevant regulations, consider working with a fulfilment expert like Bezos.
When to register an eCommerce business for VAT?
You must register your eCommerce business for VAT when your taxable turnover exceeds £85,000 in a year. Not only online stores are required to do so, however. The same rule applies to traditional brick-and-mortar stores. The registration process typically takes between eight and ten weeks, and you can be penalised for doing it late.
In general, eCommerce stores that do not go beyond the threshold are not obliged to register. The regulations are different for sellers who offer digital products to overseas clients. What is meant by digital products? Examples include ebooks, PDFs or online courses. Such stores must register for VAT in every country they trade with, irrespective of their profits.
Once you complete the registration, you might have to assess how to adjust your pricing. Since VAT represents an additional price for goods or services, you might see a decrease in profits if you do not change the prices.
If you fail to fulfil your VAT obligations, you might face financial penalties or have your store removed from the marketplace.
Do eCommerce sellers need to pay VAT on delivery?
As a general rule, eCommerce sellers in the UK do not need to pay VAT on delivery charges if the delivery is included in the price of the goods sold. In such a scenario, VAT is only payable on the overall price, which covers delivery.
However, if the delivery charge is listed separately from the price of the goods, VAT may be payable on it. In this case, the applicable VAT rate depends on the product type. The VAT rate used will be the same rate applied to the item. So, for example, if a product includes a standard 20% rate, the VAT price on delivery will also be 20%.
Cut costs with Bezos
While taxes are unavoidable, there are other costs associated with running an eCommerce company that you can reduce. For example, outsourcing your order fulfilment to a third-party provider like Bezos can save you money, effort and time.
Bezos is a full-service fulfilment provider that will handle all elements of storage, picking, packing, dispatch and shipping for you. By using Bezos’ services, you can reduce your fulfilment and delivery costs.
If you choose to work with Bezos, you will save:
- 1 to 5 hours a day on logistics tasks
- £1 to £2 per order
- Up to 80% on international orders.
Our mission is to help small and medium eCommerce businesses grow. We do it by giving them access to world-class services and scalability that, until recently, were only reserved for companies with large budgets. All that at highly competitive, transparent prices.
With us, you will only pay a fulfilment fee that starts at £3.18 for standard delivery, a storage fee that starts at £3.20 per cubic metre per week, and a monthly software subscription that starts at £149.
Bezos fulfilment services
Does saving money with Bezos sound good? Find out more about the order fulfilment services we offer!
Receiving and storing inventory
So that we can fulfil your orders for you, we need to have your stock. You can send your products to our warehouses and fulfilment centres located across the UK and in other countries. In fact, inventory reception can be done at any of our 63 fulfilment centres worldwide. Once we have your inventory, we will store it safely. Rest assured that your products will be in good hands, and your buyers will receive their orders in perfect condition.
Once we receive your stock, we will begin processing your orders immediately. We aim to prepare all orders for delivery within just 48 hours. In addition to that, our order processing solutions encompass monitoring inventory levels, inspecting products and labelling parcels.
At Bezos, you’ll be granted access to an AI-powered platform – your Seller’s Portal – where you will receive real-time updates about all of your orders. If any issues arise, you will know about them immediately and be able to react and solve them before they ever reach your clients. Additionally, our innovative platform makes it possible to track and manage your inventory remotely. If any items are out of stock, you’ll see them on your Seller’s Portal.
Did you know that by providing multiple delivery options, you can increase sales by 10-50 per cent? At Bezos, we offer several delivery options within the UK, including:
- Next-day delivery with an extended cut-off time of 9 PM
- Green delivery where orders are fulfilled from a carbon-neutral fulfilment centre
- International shipping for orders you send to foreign buyers.
We partner with all major carriers in the UK, such as DHL, Hermes, Royal Mail, Parcelforce and DPD, so with us, you can provide all shipping methods your clients need.
Are you considering shipping your goods internationally? We’ve got you covered! With fulfilment centres in 17 countries, we have a large international presence and can also help you handle international shipping. With Bezos by your side, you do not have to worry about not understanding customs processes. We’ll help you handle customs clearance and shipping documentation so that you are aware of any taxes and duties you must pay.
Understanding the various tax regulations is essential for all eCommerce businesses operating in the UK or planning to expand into the country. Unfortunately, high taxes are an unavoidable downside of running an eCommerce company. Luckily, there are other areas where you can cut costs to make up for it.
The best way to save money is to partner with an order fulfilment expert who can help you save money on deliveries. Here, Bezos is the best choice. We will handle all aspects of order fulfilment on your behalf, ensuring that everything runs smoothly and that your customers receive their products as fast as possible. Choose our high-quality yet affordable fulfilment solutions and streamline your operations. Speak to an expert today and find out more!
Frequently Asked Questions
What is fulfilment in eCommerce?
Fulfilment in eCommerce refers to receiving, processing and delivering customer orders. These processes are necessary to ensure that the products reach the customers promptly.
As an eCommerce business, you can choose whether you want to fulfil orders in-house or outsource that to a third-party logistics provider (3PL) like Bezos. 3PLs specialise in order fulfilment, so you can easily meet customer expectations and deliver parcels efficiently when working with one.
Do I have to register my eCommerce business for VAT?
If you run an eCommerce business in the UK, you must register for VAT if your annual turnover exceeds £85,000. However, if your annual turnover is below this threshold, you are not legally required to register for VAT. It is worth noting that you can still choose to do so voluntarily. Registering for VAT has the advantage of allowing you to claim back VAT on your business expenses. It might also make your business appear more professional to customers and suppliers.
Does Bezos provide packaging materials?
Bezos provides basic packaging materials such as cardboard boxes, poly bags and jiffy bags. You can also use branded or customised packaging at an extra fee. When working with Bezos, you will have a dedicated account manager who will help you decide what packaging option to use.