Accounting & Tax for E-Commerce & Online Retail Businesses

You need OSS registration if your total sales of goods or services to EU consumers across all EU countries exceed €10,000 (approx. £8,818) per year. Once above this threshold, you must charge VAT at the destination country’s rate and either register for VAT in each EU country or use the Non-Union OSS scheme administered through HMRC. We recommend OSS for any UK seller with meaningful EU sales.

For overseas (non-UK) sellers, Amazon collects and remits VAT on orders to UK customers. For UK-established sellers, you are responsible for your own UK VAT. Amazon does not collect VAT on your behalf if you are a UK-registered business — you must account for it yourself. This is a common misunderstanding that leads to underpaid VAT.

Postponed VAT Accounting (PVA) allows businesses importing goods into the UK to defer import VAT to their VAT return, rather than paying it at the border. This improves cash flow — particularly for high-import-value businesses. PVA is available to all UK VAT-registered businesses and should be used by default unless you have a specific reason not to. We set PVA up in HMRC’s Customs Declaration Service for all importing clients.

Returns reduce both revenue (credit note issued) and increase inventory (goods received back to stock — if saleable). The accounting treatment depends on whether goods are restocked, written off, or returned to supplier. High return rates (fashion averages 30–40%) create significant inventory valuation issues. We implement a returns accounting policy suited to your platform and return rate.

Not if you use the VAT One Stop Shop (OSS). With OSS, you file a single quarterly return in your home country (HMRC for UK Non-Union OSS), covering all EU member states. Without OSS, you would need to register in each EU country where you breach their individual thresholds — potentially 27 separate registrations.

For UK-established sellers, marketplaces do not handle your VAT. They may collect it for overseas sellers — but not for you. Many UK e-commerce businesses have run for years assuming the marketplace handled their VAT. HMRC investigations in this area have resulted in six-figure assessments.

The €10,000 OSS threshold is cumulative across all EU countries from 1 January each year. Many sellers don’t realise they’ve crossed it until December — by which point they owe EU VAT for the whole year plus potential penalties. Monitor your EU sales monthly.

Cash basis accounting (available to sole traders with turnover under £150,000) is inappropriate for businesses with significant inventory because it ignores stock value. Using cash basis when you hold £50,000 of stock understates your assets and distorts your tax calculation.

PayPal and Stripe settlements net of fees before payment. Many e-commerce businesses record only the settlement amount, missing gross revenue and allowable fee deductions. Proper reconciliation requires recording gross sales, then payment processor fees separately as allowable expenses.