Amazon FBA Seller
Tax & MTD Guide

Selling through Fulfilment by Amazon looks simple from the outside: source a product, ship it into Amazon, and watch deposits land in your bank every two weeks. The tax reality underneath is one of the trickiest of any sole-trader trade. The money Amazon pays you is already net of referral fees, FBA fulfilment fees, storage and advertising, so the figure in your bank account is not your turnover and it is nowhere near your profit. Build your Self Assessment on the deposit number and you will both understate your sales and lose the deductions you were entitled to.

This guide is built around how an FBA business actually works: gross sales versus settlement deposits, cost of goods sold and stock valuation, the full stack of Amazon fees, import VAT and duty, and the VAT and MTD thresholds that catch high-turnover sellers far earlier than they expect.

How Tax Works for an Amazon FBA Seller

As a sole trader you pay Income Tax on profit, which is your total sales income minus allowable expenses. For 2026/27 the personal allowance covers the first £12,570, then you pay 20% to £50,270, 40% to £125,140 and 45% above, with the personal allowance tapering away between £100,000 and £125,140 to create an effective 60% band. Class 4 National Insurance is 6% on profit between £12,570 and £50,270 and 2% above, with Class 2 NIC settled through Self Assessment.

Scottish sellers pay Scottish Income Tax across six bands (19%, 20%, 21%, 42%, 45% and a 48% top rate) and carry an S-prefixed tax code, while National Insurance stays UK-wide. Welsh sellers have a C-coded tax code at rates currently matching the rest of the UK. If a part-time PAYE job or a previous employment is distorting your code, run it through the tax code checker so your freelance profit is not taxed on the wrong assumptions.

Gross Sales vs the Amazon Deposit

This is where most FBA sellers go wrong before they have even started. Amazon's settlement report nets everything off and pays you the remainder. Your turnover for tax is the gross sales value your customers paid, and the fees Amazon took are then claimed back as expenses.

The practical fix is to pull Amazon's date-range settlement report each period and book the gross sales, then the fees, separately. This also keeps your turnover figure honest, which is essential because the VAT and MTD tests look at gross sales, not the slimmer deposit total.

Cost of Goods Sold and Stock Valuation

The single biggest deduction for a product business is the cost of the stock you sold, but you can only deduct what actually sold. Inventory sitting in an Amazon fulfilment centre at your year end is closing stock and carries forward.

A seller who buys £40,000 of stock but only sells £25,000 of it does not get a £40,000 deduction; they deduct £25,000 of COGS and carry £15,000 of closing stock forward. Claiming the full purchase figure inflates expenses, understates profit and is exactly the kind of error HMRC looks for in a product business. Keep a simple inventory record: units in, unit cost, units sold, units remaining. See our cost of goods sold explainer for the full calculation.

The Trading Allowance and Starting Out

Many sellers test the water with a few products before committing. The £1,000 trading allowance covers this: if your gross sales from all self-employment are £1,000 or less in a tax year, it is tax-free and you need not register for Self Assessment. Note this is GROSS sales, not profit, so a seller who turns over £3,000 but barely breaks even is still over the threshold and must register.

Once over £1,000 you can deduct either the flat £1,000 allowance or your actual expenses, whichever gives the lower profit. For almost every FBA seller, actual costs (stock, fees, shipping) dwarf £1,000, so you will claim real expenses. The allowance mainly helps the genuine micro-seller in their first months.

Allowable Expenses for Amazon FBA Sellers

An expense is allowable when incurred wholly and exclusively for the business. For FBA the list is long because Amazon charges for almost everything.

Import VAT and Duty: Handle Them Separately

Customs duty is a cost of getting goods to a saleable state, so it generally forms part of your stock cost and flows through COGS. Import VAT is different: if you are VAT-registered you reclaim it on your VAT return rather than treating it as an expense, using your monthly C79 certificate (or postponed VAT accounting). If you are not yet VAT-registered, import VAT is a real cost you cannot reclaim, which is one reason high-volume importers often register voluntarily.

What You Cannot Claim

The cost of unsold stock (it is closing stock, not an expense), the private share of dual-use broadband or phone, everyday clothing, fines or penalties from Amazon, and the capital you withdraw as drawings are not deductible. Entertaining and gifts to customers are also generally disallowed.

Worked Example: An FBA Seller on £70,000 of Sales

Take a sole trader selling private-label products through FBA, turning over £70,000 of gross sales in the year, before Amazon's fees.

Gross sales: £70,000

Allowable expenses:

• Cost of goods sold (units actually sold): £28,000
• Amazon referral fees (approx 15%): £10,500
• FBA fulfilment and storage fees: £6,000
• Advertising (Sponsored Products): £4,000
• Inbound freight, duty and prep: £2,500
• Software, photography and home-office: £1,800
• Accountancy and bank fees: £600
• Total expenses: £53,400

Taxable profit: £70,000 minus £53,400 = £16,600

Income Tax: £16,600 minus £12,570 = £4,030 at 20% = £806

Class 4 NIC: £4,030 at 6% = £242

Total tax and NIC: roughly £1,048 for the year. Note how a £70,000-turnover business produces a modest profit yet is already comfortably over the £50,000 MTD threshold because that test is on gross sales. Run your own figures through the sole trader tax calculator, and if you also draw a salary or other income use the multiple-income calculator.

VAT for Amazon FBA Sellers

VAT catches FBA sellers earlier than almost any other trade because the £90,000 registration threshold is tested on rolling 12-month gross sales, not profit. A high-turnover, low-margin seller can cross it while making very little. Once registered you charge 20% VAT on standard-rated sales, reclaim VAT on Amazon fees and import VAT, and file under Making Tax Digital for VAT.

Two marketplace wrinkles matter. First, Amazon collects and remits VAT on behalf of non-UK established sellers and on imported consignments valued at £135 or less, so the VAT flowing through your account is not always yours to keep or pay. Second, if you sell into the EU you may need EU VAT registrations or the Import One-Stop Shop (IOSS), which sits outside UK VAT entirely. If you are approaching £90,000, register early and price VAT into your margins before HMRC backdates a liability you never collected.

MTD for Income Tax: What Changes for Sellers

Making Tax Digital for Income Tax replaces the once-a-year return with quarterly digital submissions and a year-end finalisation. The thresholds are based on gross income, not profit:

• April 2026: Combined self-employment and property income over £50,000
• April 2027: Over £30,000
• April 2028: Over £20,000

For FBA sellers the gross-income test is the sting in the tail. Because turnover is measured on gross sales before Amazon's fees, a seller with healthy revenue but thin margins is pulled into MTD well before their profit would suggest. The upside is that connecting your bookkeeping to your settlement reports and filing quarterly forces the disciplined, continuous record-keeping a product business needs anyway. Our guide to MTD for sole traders walks through the quarterly rhythm in practice.

Record-Keeping and NIC

Keep your Amazon date-range settlement reports, supplier invoices, freight and customs paperwork (C79s if VAT-registered), advertising statements and an inventory log of units in, unit cost and units sold. Reconcile the settlement deposits to your bank monthly so nothing slips. On National Insurance, Class 4 at 6% then 2% is calculated automatically from your profit, and Class 2 is settled through the same Self Assessment return; if your profit is low, voluntary Class 2 can still be worth paying to protect your State Pension record.

Common Mistakes Amazon FBA Sellers Make

Reporting the net Amazon deposit as turnover. It is net of fees. Report gross sales and deduct the fees, or you understate both turnover and deductions.

Claiming all stock purchased instead of stock sold. Unsold inventory is closing stock carried forward, not a current-year expense.

Missing the VAT threshold because they watch profit. VAT is tested on gross sales; high-turnover sellers cross £90,000 fast.

Confusing import VAT with import duty. Duty goes into stock cost; import VAT is reclaimed on the VAT return if you are registered.

Assuming a PAYE job's allowance covers selling profit. If a day job already uses your personal allowance, every pound of FBA profit is taxed from the basic rate up.

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