UK e-commerce companies are getting ready for the increase in orders as Black Friday approaches and lasts through Christmas and Boxing Day. Even though they make more money, most dealers are finding that their profits are slowly or quickly vanishing. Why?
The answer often lies in the silent killers of profitability: VAT obligations and platform fees. For UK-based online sellers, especially those operating across platforms like Amazon, eBay, or Shopify, the combination of complex tax requirements and unclear bookkeeping often results in lost profits and compliance headaches.
This blog explores how VAT and fees chip away at your bottom line — and more importantly, how to fix it before peak season hits.
The Real Cost of VAT and Platform Fees
It is possible to make a lot of money online, but you should know there are costs you might not see. For many businesses, Value Added Tax (VAT) can be very confusing, especially for those involved in both local and global trading. Take into account the fees from places like Amazon and eBay and you’ll soon see a major part of your gross revenue ending up in those platforms rather than with the business.
For example, Amazon charges:
- Referral fees (usually 8–15% of the item price),
- Fulfilment fees,
- Monthly subscription fees,
- Long-term storage fees.
At the same time, if your eCommerce VAT isn’t set up correctly or if you’re over-reporting due to poor bookkeeping, you could be paying more tax than necessary or facing fines and penalties.
Why Many eCommerce Sellers Get VAT Wrong
VAT compliance is rarely straightforward for eCommerce sellers. Things get complicated right from the start regarding where and when you need to register. You should be aware that if you send goods to EU countries from the UK, you might have to register for VAT in each country or use the OSS scheme depending on your fulfillment process.
Here are some common VAT mistakes:
- Failing to register for VAT in the UK after crossing the £90,000 threshold.
- Ignoring EU distance selling thresholds post-Brexit.
- Misunderstanding marketplace collection rules (e.g., Amazon may collect VAT for you, but not in all cases).
- Claiming VAT on items not eligible for deductions.
If you’re not sure how to begin, we have put together a comprehensive guide on VAT compliance for eCommerce sellers.
What VAT Considerations Do UK Online Sellers Need to Know?
You’ll find information on applying VAT rules to dropshipping, what to do if you have sales in several countries and how to register for OSS/IOSS in this guide.
The Role of Amazon Bookkeeping in Protecting Profits
VAT mistakes often begin with bad bookkeeping, and Amazon is notoriously difficult to reconcile.
Unlike traditional businesses, Amazon payouts don’t reflect gross revenue, fees, or VAT clearly. Your Amazon Seller Central reports must be interpreted correctly to ensure that:
- VAT is calculated accurately based on gross sales.
- Amazon fees are properly recorded.
- Refunds and reimbursements are accounted for.
If your accounting software doesn’t sync correctly or your bookkeeper isn’t familiar with Amazon’s reporting quirks, it’s easy to either under-report income or overpay VAT.
For a deeper look into how to do this right, check out our specialist guide:
- Mastering Amazon Bookkeeping: A Complete Guide for Sellers
This guide explains how to automate reports, reconcile settlements, and avoid the most common Amazon accounting errors — even if you sell across multiple countries.
Common Mistakes That Cost Sellers Thousands
Here are a few examples of real-world errors that erode profit margins:
- Unclaimed VAT on business expenses: Many sellers forget to claim VAT on packaging, software, or shipping, missing out on reclaimable tax.
- Incorrect categorisation of Amazon fees: Misclassifying these fees results in inaccurate gross profit reporting and flawed tax filings.
- Missing cross-border VAT registration: Sellers often exceed the £8,818 (€10,000) OSS threshold for EU sales but fail to register, leading to backdated tax bills.
- Undercharging customers: If you haven’t included VAT in your pricing model, you’re essentially paying it out of pocket.
Each of these errors may seem minor, but over a year, they could cost you thousands, especially at high-volume times like Q4.
How to Fix These Issues Before Peak Season
The good news? It’s not too late to turn things around before peak season hits. Here’s how to protect your margins and stay compliant:
1. Conduct a VAT Compliance Review
Find out where you are registered to vote, check where you must be registered and review how your returns are filed. Review sales through Amazon, eBay, Etsy and your personal website.
2. Automate Your Bookkeeping
If you have Xero or QuickBooks and use Amazon, try integrating it with the help of A2X, Link My Books or Expandly. These tools break down settlements by revenue, fees, and VAT, making it easier to report accurately.
3. Revisit Your Pricing Strategy
Ensure your product pricing includes VAT and that you’re not absorbing costs. Consider a margin review to account for platform fees and tax.
4. Get Professional Help
An accountant experienced in eCommerce VAT and Amazon bookkeeping can help you spot issues you didn’t even know existed. They can also support you through audits, refunds, and EU registrations.
Tools & Services That Can Help
If you want to simplify and streamline your eCommerce accounting, consider:
- A2X – Integrates directly with Amazon, Shopify, and eBay to automate bookkeeping.
- Link My Books – Designed for UK VAT and Making Tax Digital compliance.
- Xero – A cloud-based accounting system ideal for eCommerce sellers.
- Tax advisors/accountants who specialise in online retail (preferably with Amazon marketplace experience).
Investing in these now means fewer headaches when sales spike in November and December.
Final Thoughts: Take Action Before the Rush
Peak season offers a massive opportunity — but only if you’re set up to capture and keep those profits. If your business is losing money to VAT missteps or hidden fees, now is the time to address it.
Start with:
- A quick VAT check-up.
- A review of your Amazon bookkeeping setup.
- Automation tools to remove manual errors.
- Expert support if you’re unsure.
Let this be the season you grow sales and maximise profits.
Explore More:
- eCommerce VAT in the UK: A Guide for B2C, B2B, and Overseas Sellers
Need help getting your eCommerce finances in order before peak season?
We at E2E Accounting Services offer tailored support for VAT compliance, Amazon bookkeeping, and end-to-end eCommerce accounting. Get in touch today.