Operating a store on an online platform like eBay is an excellent source of income. While it offers perks that come with being an e-commerce business owner, it isn’t all play. Here are ten facts eBay accountants will tell you about running one.
10 Things eBay Accountants Will Tell You About Having an Online Store
Have an amazing product you want to sell on eBay? Running an online store is a great money-making venture, albeit challenging. Not everyone finds success on this platform, especially if one is ill-prepared for it. Learn the key insights about operating an eBay store to get it off the ground and stay above it.
1. Business License Is Optional in the UK
You don’t have to be registered to operate an e-commerce business in the UK. While you can begin selling immediately to UK-based customers, this isn’t the case in the US. You have to get a business license to operate, along with a seller’s permit or sales tax license.
As the rules apply differently depending on your customer’s geographic location, consult an accountant or Sterlinx Global to avoid costly oversights.
2. It’s Better to Set Up a Company
A business license is optional, but establishing a company for your eBay store offers many advantages. A legal entity like a limited company ensures your business and personal finances are separate. When an enterprise fails, your assets won’t be used to settle outstanding company-related obligations.
Moreover, a company makes it easier to open a business bank account and avail of loans—both can help run your online store more smoothly.
3. You Must Pay Taxes
Even though you don’t need to register your eBay store, you still have to pay taxes or face hefty penalties for non-compliance.
In the UK, you must register your business with the HM Revenue and Customs (HMRC). You should do this within three months of starting your eBay store operations. A ‘failure to notify’ may result in substantial charges.
If your failure to notify wasn’t deliberate, ask a UK accountant to know your next step, including informing HMRC of a reasonable excuse to avoid steep fines.
4. VAT Isn’t the Only Tax You’re Paying
Value-added tax or VAT is added to most goods sold by VAT-registered businesses. Generally, only those with sales of £85,000 annually are required to charge VAT and remit it to HMRC. But even if you fall below the taxable threshold, better register for VAT early on so you won’t have to when your turnover exceeds the cap.
Depending on how you’ve set up your eBay store, you may have to pay the following to HMRC as well:
- Corporation Tax
- Income Tax
- National Insurance
If you’re selling to US customers, you have to pay sales tax instead of VAT in the UK and other EU countries. When you’re unsure of the taxes you need to settle, work with experienced eBay accountants.
5. Timely Filing of Returns Is Important
In addition to knowing the taxes you need to pay as an online seller, keeping track of when these are due is essential. For instance, you must file a VAT return every quarter.
An alternative to quarterly filings is yearly under the VAT Annual Accounting Scheme. You have to submit only one VAT return but subject to certain conditions. The same frequency applies to corporation tax.
Sometimes, the HMRC may ask you to file returns monthly. This happens if you have repeatedly failed to submit on time. Speak to a tax adviser or accountant to determine the right filing frequency for you.
6. Know the Applicable Rules to Your eBay Store
Online selling becomes more complicated when your buyers are outside the UK. You have to know the rules for VAT payments and exportation, especially with the UK out of the EU.
There are duties and restrictions for moving goods outside of the UK, so research what applies to your products and target market. Begin your search here, but talk to eBay accountants to ensure compliance.
7. Accurate Recordkeeping Is Vital
Maintaining correct records accurately shows your eBay store’s financial condition. Moreover, it helps with tax management and planning.
It’s best to know the basics of bookkeeping and accounting so you can handle these tasks yourself. At the minimum, note your daily sales, expenses, and cash movement. Avoid delaying doing your books to track transactions better.
Always keep receipts, invoices, bills, and other pertinent documents for at least six years before throwing them out. You’ll have records in case the HMRC conducts a compliance check.
8. Sales Shouldn’t Be Your Only KPI
Total turnover from your eBay store is only one of the many performance indicators you must monitor. You have to monitor the cost of goods sold and expenses to determine if you’re making a profit.
Besides earnings, it’s essential to keep an eye on your cash flows—how much money you have on hand, where funds are tied up, and what needs to be paid. It’s a common misconception that a sale is equivalent to cash—it isn’t, especially when you offer credit or it takes time for customer payments to clear.
9. Create a Budget and Stick with It
Budgeting is important to running an eBay store since you want to know if you’ll have enough funds to keep your business afloat.
Forecast your overhead costs and expenses to estimate your break-even sales without factoring in receivables. Your future turnover should be sufficient to cover these payables. Alternatively, find a way to reduce non-essential spending.
Sometimes, you can reach this target through marketing campaigns—just ensure you won’t overspend for these endeavours.
10. Working with a Professional Simplifies Things
Many bookkeeping and accounting tools are available to help e-commerce business owners with these tasks. In selecting the best software for you, know the features that cater to your needs.
Further, simplify these tasks by hiring eBay accountants since they specialize in handling financial records and reports of online selling businesses. Consult one from Sterlinx Global for your accounting needs.
Frequently Asked Questions
What is the ideal accounting method for my e-commerce business?
There are two accounting methods you can use—cash basis and accrual. Under the former, transactions are only recorded with money movement. For example, a sale is recognized once the payment gets credited to your account.
The accrual method measures transactions when incurred, not when cash enters or exits. It can be confusing, but it gives a more accurate snapshot of your business’s finances. Talk to an accountant to understand which suits your needs best.
Is the VAT rate the same across products in my eBay store?
It depends on the products carried. The standard VAT rate is 20% for most goods; however, there are two more rates you should also consider.
Some products are charged with a reduced VAT rate of 5%, while others come with a zero rate. The latter category means goods are still subject to VAT, but the rate charged is 0%.
How do I reduce my UK tax dues as an online seller?
There’s little wiggle room on the VAT you should pay since you have to remit the difference between what you’ve charged and charged with. However, you can cut down on corporation tax by properly accounting for eligible business-related expenses. This reduces your earnings and, by extension, your tax due.
Running an eBay store takes more than a great product. As an owner, you also have to be knowledgeable in handling the back end of operations such as bookkeeping, accounting, and tax management. Ease the burden when you work with an accountant well-versed in online selling.