E-Commerce business owners have a ton of great knowledge—but this doesn’t necessarily mean they’re on top of all their accounting and tax duties. That’s where accountants come in.
We therefore decided to host a live Q&A on renowned YouTube expert business coach Dan Rogers’ channel featuring our very own Taimur Ghafoor, Senior Accountant at Osome UK.
Taimur kindly offered up his time and expertise to help E-commerce business owners from all around the world. He answered burning questions ranging from when the best time to get an accountant is, to what expenses are allowable for E-commerce owners.
Let’s dig into some of the most important questions they asked before providing you with Taimur’s unmissable insights. To watch the full video, scroll till the end of this article. Enjoy!
Skip to:1. When Should I Get An Accountant?
2. How Is E-commerce Accounting Different From Regular Accounting?
3. How Has Brexit Impacted E-commerce?
4. What Are The Biggest E-commerce Accounting Mistakes That You’ve Seen?
5. Which E-commerce Expenses Are Tax-deductible?
6. What’s The Difference Between Amazon’s Fba Fees And Referral Fees?
7. Should I Set Up A Different Company In The Overseas Market In Which I Operate?
When Should I Get An Accountant?
You’ve set up your E-commerce store and the sales are flooding in. Woohoo, you’re off to the races! In the back of your mind, you know that you’re going to have to stay on top of your books and file tax returns, but that’s next year’s problem—you’ve got 12 months to sort that out.
Right now, you have a ton of other priorities: fulfilling orders, expanding into new markets, increasing your product line, and other fun stuff.
Sound familiar? If so, you’re far from alone. This doesn’t mean that it’s the right approach. According to Taimur, you need to get yourself an accountant (ideally one with E-commerce-specific experience and knowledge) as soon as possible.
“By delaying hiring an accountant until the last moment, you’ll have to pay more (as it’s a bigger workload for them) and you’ll also have to do more, providing key financial information and bank statements as soon as possible. It just doesn’t make sense from a business owner’s perspective.”
And that’s not all. Accountants are great at compliance-related work, but that’s only the tip of the iceberg when it comes to the value they add to your business. Taimur was quick to point out that if you delay hiring an accountant, you’re also missing out on crucial insights that will help you grow your business more effectively.
“If you’re investing a lot of money in your E-commerce business, you need to make sure that it’s being spent well and that you’re getting a solid return on investment. You need to understand what the numbers are saying and how that should dictate your future decisions. In other words, you need to consult with an accountant on a regular basis.”
How Is E-commerce Accounting Different From Regular Accounting?
According to Taimur, so-called ‘regular accounting’ is a piece of cake compared to E-commerce accounting. Think about it. If you’re a shop owner, you just have to monitor your expenditure, sales, revenue and profit before paying the relevant Corporation Tax. Sure—there may be lots of numbers flying around—but it’s pretty cut-and-dry at the end of the day.
E-commerce, on the other hand, is a multi-headed beast. Importing goods into the UK before then selling them overseas to another market means you have to pay VAT at customs, deal with a whole host of paperwork, and get your head around Incoterms and the like.
To make things even harder, Brexit has torn up the existing rulebook and added a whole other layer of complexity. Fantastic.
“When it comes to E-commerce, there are so many variables to wrap your head around: incoterms, cross-border VAT requirements, etc. That’s why E-commerce-specific accountants are so valuable. They have niche knowledge that ensures you’re getting the right sort of advice and assistance, rather than a generic service that’s not designed with your business in mind”.
How Has Brexit Impacted E-commerce?
In a nutshell, the UK has left the EU’s single market and so is now subject to a whole host of extra rules and regulations. Goods used to be able to flow freely between the UK and Europe. After all, they were subject to the same laws and trade agreements. Now, however, that’s no longer the case.
Brexit is a massive logistical headache for UK-based E-commerce sellers. Not only do they now have to fill out endless paperwork (such as VAT returns in each European country in which they operate), but they are also subject to extra fees when transporting goods into the EU. They could offload this cost onto their customers, but unsurprisingly, this is never a wise idea—especially if customer retention is a priority.
And that’s all without even mentioning Fulfilment by Amazon (FBA).
British companies can no longer benefit from a pan-European fulfilment system that sends goods from warehouses based here in the UK. Now, you have to transport your goods from the UK into Europe (at additional expense), where they’ll then be stored in an FBA warehouse and then eventually fulfilled to your final destination.
What Are The Biggest E-commerce Accounting Mistakes That You’ve Seen?
Taimur’s seen plenty in his time as an E-commerce accountant. These are usually mistakes related to not recording VAT properly, recording the goods that you buy as expenses, and erroneously thinking that only your payouts count as sales (rather than the total value of everything that you’ve sold).
That said, there are certain mistakes that are even more damaging.
“I had a client who was selling a product for £20 that he was buying for £15. He thought this was great—but he’d forgotten to factor in the cost of his time, his accountancy fees, utilities, and other expenses into his calculations. When I explained this to him, he quickly realised he was essentially operating at a loss.”
Which E-commerce Expenses Are Tax-deductible?
The government wants to encourage businesses to flourish—that’s why certain expenses are tax-deductible. Only, not all expenses are deductible. If you want to wine and dine a client, for instance, then you cannot deduct this from your tax bill.
This notwithstanding, there are plenty of expenses that you can deduct. Hooray! Anything that you legitimately spent for the business—in other words, expenses that you wouldn’t have made if it weren’t for the fact that you’re running a business—is tax-deductible. This includes a portion of your rent if you work from home, a portion of your phone bill if you use it for business purposes, shipment costs, and so on.
“Off the top of my head, I’d say that you could probably deduct around 90% of all your business taxes from your tax bill—but this depends from business to business. If you’re unsure, it’s always best to get in touch with an accountant as they’ll know exactly what is and isn’t tax-deductible.”
What’s The Difference Between Amazon’s Fba Fees And Referral Fees?
Fees are the bane of E-commerce seller’s lives. Whether it’s shelling out to pay for VAT here in the UK or overseas, or paying other parties involved in your supply chain, fees are never fun. When it comes to Amazon, you might’ve noticed that you have to pay 2 distinct sets of fees: FBA fees and referral fees.
But what’s the difference between the two?
Put simply, FBA fees refer to the cost of fulfilling your orders—getting goods from the warehouse to your customers’ doorstep. Referral fees, on the other hand, are the fees you pay Amazon for the privilege of using their platform.
See, Amazon wants a cut of the pie for each sale you make. Unfortunately, there’s no getting around this, unless you want to ditch using Amazon’s platform going forward.
“FBA (i.e. fulfilment fees) are to pay for Amazon picking, packing, and shipping out your product from the warehouse. They also charge you a referral fee as well per unit you sell. This is usually set at 15%, but it does depend on your products’ category.”
Should I Set Up A Different Company In The Overseas Market In Which I Operate?
This was a really good question and there’s a certain logic to it. If it’s such a hassle to sell products overseas then why not just set up an entirely new entity in the country in which you want to operate?
Unfortunately, Taimur wouldn’t recommend this approach. While it may sound easy in practice, registering and operating a country overseas is no mean feat—especially if you have to do all this in another language.
“The best option is to keep your UK limited company and just register for VAT overseas. Keep running your business as simple and straightforward as possible—this will keep your accounting, business management, and general paperwork duties to a minimum. It’s not worth the hassle”.
Nothing Makes Up For Ongoing Assistance
We hope that Taimur answered some of your most crucial questions. That being said, it simply cannot compare to having your own accountant on-hand 24/7. With Osome, you can ask your accountant a question whenever you stumble into a potential hurdle. They will respond within minutes, offering valuable advice and helping you grow your business to reach its full potential.
Let’s get started. Book a demo today to learn more about hassle-free accounting for e-commerce businesses like yours reach the top.