1. Reporting Payouts Instead of Gross Turnover
One of the most dangerous mistakes you can make is using the “net payout”, the amount Amazon or Shopify actually deposits into your bank account, as your turnover figure.
HMRC expects you to report gross sales before any fees, shipping costs, or advertising spend are deducted. When Amazon sends its annual data report to HMRC, they report your gross sales. If you report the lower net amount, your tax return will show a significantly lower income than what HMRC sees on their end. This is a red flag for an audit.
How to fix it:
Always record your sales at the gross level. You should then record Amazon’s fees (FBA, storage, and referral) and Shopify’s transaction fees as separate business expenses. This ensures your turnover matches the platform data exactly, keeping your records transparent and compliant.
2. Falling into the “Marketplace VAT” Trap
Many sellers believe that because Amazon or Shopify (via certain apps) calculates and collects VAT on some transactions (like those under the IOSS or UK marketplace rules), they no longer need to worry about VAT compliance.
This is a misconception that can lead to massive underpayments. While marketplaces do “deemed supplier” VAT collection on specific cross-border sales, you are still responsible for calculating and reporting VAT on your domestic sales, monitoring your VAT registration threshold, and ensuring your accounting software correctly identifies which sales were “taxed at source.”
How to fix it:
Map your sales data by geography and tax responsibility. Use an ecommerce accountant UK to review your “VAT Transactions” reports from Amazon. This ensures you aren’t paying VAT twice on marketplace-collected orders, but more importantly, that you aren’t failing to pay it on your own taxable sales.
3. Ignoring the Reconciliation Gap
If you use accounting software like Xero or QuickBooks, you might think your data is “done” once the bank feed is reconciled. However, bank feeds only show the final payout. They don’t show the breakdown of refunds, chargebacks, or the specific VAT rates applied to different products.
HMRC’s 2026 audits focus heavily on “the trail.” If you cannot prove how a £10,000 payout from Shopify breaks down into individual sales, VAT, and shipping fees, HMRC may reject your expense claims or challenge your turnover figures.
How to fix it:
Perform a monthly reconciliation between your platform reports (Amazon Settlement Reports or Shopify Payout Reports) and your accounting software. Every penny must be accounted for. If you find this manual process overwhelming, structured bookkeeping services can automate this data flow for you.
4. Mismanaging Currency Conversion and Exchange Rates
For Shopify sellers using Shopify Payments or Amazon sellers trading in the EU, USA, or Canada, currency conversion is a constant source of data errors. If you sell $100 on Amazon US, you cannot simply record the GBP amount that arrives in your bank weeks later.
HMRC requires you to use an approved exchange rate at the time of the transaction or the time of the payout. Using “estimated” rates or the rate provided by a 3rd party payment processor without documentation can lead to inaccuracies in your VAT and Corporation Tax filings.
How to fix it:
Use a consistent, documented method for currency conversion. Most professional ecommerce sellers use specialized software that pulls the HMRC-approved daily rate. This ensures that your international compliance is bulletproof and your profit margins are accurately tracked.
5. Overlooking Ad Spend and FBA Fee Deductions
When HMRC audits an ecommerce business, they look for “unsupported expenses.” Many sellers download their Amazon 1099 or summary reports but fail to keep the actual invoices for Amazon Advertising (PPC) or monthly storage fees.
Because these fees are often deducted from your balance before you get paid, they can become “invisible” in your accounting if you aren’t careful. If you don’t have the specific VAT invoice for these services, you cannot legally claim the VAT back or deduct the full expense from your profits.
How to fix it:
Download and archive every tax invoice from the “Tax Document Library” in Amazon Seller Central or the “Billing” section of Shopify every month. Don’t rely on the platform to keep these forever; HMRC requires you to keep records for six years.
6. Incorrectly Handling Refunds and Returns
Returns are a fact of life in ecommerce, but they are an accounting nightmare. A common mistake is simply ignoring returns or recording them only when the cash is paid back to the customer.
However, a return usually involves a VAT adjustment and a reversal of the original sale. If you sold an item for £120 (including £20 VAT) and it is returned, you need to ensure that £20 is reclaimed on your VAT return. If you simply “net out” your sales, your audit trail becomes messy and harder to defend during a 2026 HMRC review.
How to fix it:
Ensure your data capture tool (like A2X or Link My Books) is configured to post refunds to a specific “Returns” account. This allows you to track return rates as a KPI while keeping your VAT reporting accurate. You can learn more about managing VAT for Amazon sellers to see how returns impact your bottom line.
7. Ignoring HMRC “Nudge” Letters
In 2026, HMRC is increasingly using “nudge letters”, polite but firm notifications that they have “information from third parties” suggests you may have under-declared your income.
The biggest mistake you can make is ignoring these or replying without a full data review. These letters are often the precursor to a full-scale audit. If you receive one, it means HMRC has already spotted a discrepancy in your Amazon or Shopify data.
How to fix it:
Don’t worry, but do act immediately. Conduct a “health check” on your last two years of filings. Compare your declared turnover against your platform gross sales reports. If there is a gap, making a “prompted disclosure” usually results in much lower penalties than waiting for a formal investigation.
