You might be overpaying taxes on your Amazon or Shopify business.
Here’s a short quiz for customised advice on bookkeeping and lowering tax payments. There might be a sweet discount included!
Amazon or Stripe sends some money to your bank account. Do you categorise this amount as revenue?
When you record it as sales, you may miss useful data for making better business decisions. This information may include how much it would cost you to operate across different marketplaces or different countries; which of your product is more popular, and which brings you more profit. These data would help you decide the next steps to grow your business.
Make sure your VAT is allocated correctly, especially the Amazon fee. You might end up paying more VAT than you have to, and we don’t want that for you.
When calculating how much VAT should you pay, do you apply the same tax rate to all the Amazon fees and your products?
Amazon has a unique taxing system, and each transaction has different VAT rates involved. Here are the items you see on an invoice from Amazon: Amazon sales, Amazon FBA fees, Amazon seller fees, Amazon advertisement, and Amazon refunds.
Each of these will be included in the Amazon settlement statements. The final amount is released to you after making adjustments on all these income and expenses.
In the UK, Amazon sales will be taxed at 20% VAT, Amazon FBA fee and Amazon seller fees will be taxed as reverse charge expenses at 20%, Amazon advertisements will be charged as 20% VAT on expenses. Whereas Amazon refunds will be charged at 20% VAT on income.
Ensure your VAT is calculated correctly by applying the correct rate for each line item in the Amazon settlement statements to not end up overpaying VAT.
What VAT rate are you applying for the cost of goods sold?
Different industries and products have different VAT rates. It applies to more than just products but also your shipping etc. If you sell zero-rated items (like most food, books and children's clothes), you should only charge zero shipping rates.
There are different VAT rates in the food industry, depending on the ingredients used and the end product. For example, as a bakery, you would be purchasing ingredients such as butter and eggs. Butter and eggs are zero-rated items for VAT purposes, but if you end making chocolate from it, VAT is at a standard rate of 20%.
I sell my products in bundles on Shopify, and some items have different VAT rates. The way I account for this is:
You can automate the whole process by setting up each product's tax rate on Shopify. Once your Shopify knows which product is VATable and non-VATable, you can link the same on A2X. A2X automates e-commerce accounting for Shopify and Amazon stores by directly posting Shopify store sales to Xero (the accounting software we use). Once the initial setup is ready, every sale you make on Shopify will auto-populate Xero with the correct tax applied.
I am selling on Etsy and customers from all over the world are buying my products. The way I account for VAT is by
Etsy uses a holding account to accumulate all of your sales. It regularly sends cash over to your account, similar to Amazon. Etsy also uses its holding account to charge you payment fee, refunds & bill payments. The remainder gets sent back to your account.
Using Excel can be daunting. You would need to download different reports, combine them into one, and then upload it again to Xero in a format that Xero accepts. Your accountant can do this for you but might charge more as it requires a lot of work.
To ensure all of this is accounted for and reflected in the reporting, we use automatic add-ons. Etsy sends data to Xero automatically without you doing any heavy lifting. We set up a Xero account based on your preference. Then you can get it all reconciled automatically with a few clicks.
An advanced level question now. Do you know how much profit you’re making on each of your products (or product groups) per each sales channel (i.e. Amazon, eBay, Facebook, Instagram)?
“Where does the money come from?” That’s one of the most important questions for any e-commerce business. If you know how profitable you are in each of the channels for each product (or category), you’ll make more informed decisions on where to put your energy and investments. You’ll grow your business that much faster.
Let’s look at efficiency now. What best describes how you do your bookkeeping?
Preparing bookkeeping manually consumes a lot of time, and your time can be used more efficiently than that. It might make sense to outsource the routine to a reliable expert provider and focus on the things that really matter, like growing your business.
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