Choosing to sell on Amazon is becoming increasingly popular for individuals, sole traders, and limited companies, providing enhanced exposure and access to millions of potential customers online.
According to Mintel, almost 90% of all UK shoppers use Amazon, and around 70% make purchases on the site at least once a month. As a result, Amazon is now the 5th largest retailer in the UK. It’s easy to see why it’s such an appealing selling platform for new and existing businesses of all sizes.
At Rapid Formations, we receive a lot of enquiries from people who are interested in setting up a limited company for an Amazon business. The two most common queries are:
- Is it better to sell on Amazon as a limited company or as a sole trader?
- Can I change my Amazon Seller account from sole trader to limited company?
To answer these questions and help you to make the right decision, we will discuss the sole trader and limited company options available in the UK, as well as the process of setting up an Amazon Seller account. By the end of the blog, you should have a better understanding of this confusing topic and be confident in your decision to sell on Amazon as a limited company or sole trader.
Should I sell on Amazon as a sole trader or limited company?
Deciding whether to use a sole trader or limited company business structure depends on how much you’re going to sell on Amazon. Choosing the wrong type of business structure could significantly impact your Income Tax bill and National Insurance contributions (NIC), so it is not a decision that should be taken without careful consideration.
Generally, if you’re only likely to sell a small number of items each month, or you are planning to sell on Amazon on a casual basis, registering as a sole trader will probably be best. In these situations, you’re unlikely to gain any tax advantages by setting up a company. However, if you’re intending to sell a lot of products on Amazon on a regular basis, it will be more tax-efficient to set up a limited company. You will also benefit from limited liability.
Potential tax savings
Limited companies pay 19% Corporation Tax on profits. Sole traders pay 20-45% Income Tax on profits. Value Added Tax (VAT) may also be payable. However, the rules and requirements for VAT registration are the same for companies and sole traders, so this potential tax liability will apply either way and should not influence your choice of business structure.
Choosing to sell on Amazon as a limited company will enable you to minimise your personal tax and NIC liabilities. This is because you will be able to pay yourself a combination of salary and dividend payments.
By paying yourself a salary below the National Insurance primary threshold, you won’t have any National Insurance or Income Tax to pay. The primary threshold for the 2022-23 tax year is £9,880/year (6 April—5 July 2022), then £12,570/year (6 July 2022—5 April 2023).
Meanwhile, the first £2,000 of dividends will be tax free. Any dividend income above that amount will be subject to dividend tax rates between 8.75% and 39.35%, which are far lower than Income Tax rates. Furthermore, neither you nor your company will have to pay NIC on dividend income.
Conversely, if you choose to sell on Amazon as a sole trader, all profits will be treated as personal income. This means that all of your profit will be subject to varying rates of Income Tax and NIC.
As a general rule of thumb, you will pay more tax as a sole trader than a limited company when your annual income from all sources reaches around £30,000 per year. And if your income exceeds £50,000, you’ll become a Higher-rate taxpayer, which means you will pay 40% tax on any personal income above that amount.
Aside from the tax-saving benefits, setting up a limited company will also protect your personal finances. This is because limited companies are treated as distinct legal entities (just like people), so they are responsible for their own debts and liabilities.
If your business faces any legal issues or is unable to pay its bills, your personal finances and assets will be protected beyond what you’ve already invested in the business.
If you set up as a sole trader, there will be no legal distinction between you and the business. All business debts and liabilities will be your debts and liabilities, so your personal finances and assets will be at risk if anything goes wrong.
Is it difficult and expensive to set up a company?
There are many misconceptions regarding setting up a limited company. People assume it is difficult, expensive, and requires a lot of work. In reality, it’s really quick and easy to set up a company, it can cost as little as £12.99, the annual reporting requirements are pretty straightforward, and using an accountant to deal with your tax affairs will probably save you money.
You can register a limited company for your Amazon business online. It takes around 5 minutes to fill out the application form, and most companies are set up within 3 to 6 working hours. When your company is registered, you will receive all of your incorporation documents and you can start trading immediately. You can then set up your Amazon business on the very same day.
The simplicity of company formation comes as a surprise to many people. It is no longer an exclusive business structure reserved only for affluent entrepreneurs and large businesses. Limited companies are suitable for all types of traders and all sizes of businesses, both new and established.
You will have a few additional filing obligations and may have to spend a little more money on an accountant (which is optional, not required), but you will have the opportunity to retain more of your Amazon profits. Your accountant can advise on the best ways to minimise your tax bill and operate your business in the most tax-efficient way, so you will probably save more money than you spend on any such additional services.
Changing Amazon Account from sole trader to limited company
If you are already set up as an Amazon Seller, changing from a sole trader to a limited company can be tricky. It really shouldn’t be, but the process of moving an Amazon Seller Account to a new entity requires re-verification, which seems to result in significant delays.
In many cases, sole traders who request to transfer an existing seller account to a new limited company are unable to sell through Amazon for several weeks or months whilst their accounts are waiting to be reverified. During that time, seller accounts are often suspended, resulting in lost income.
Given the apparent difficulty that most people face when attempting this process, we would advise setting up a limited company before creating an Amazon Seller Account – particularly if you know or think that you will want to trade as a limited company at some point in the future.
Setting up an Amazon business
There are two ways you can sell on Amazon – by registering as a vendor on Amazon Vendor Central, or by registering as a seller on Amazon Seller Central. As an individual or a startup or small business, you will only be able to create an account on Amazon Seller Central, but it’s worth understanding the difference between the two types of accounts.
Amazon Vendor Central Account
A popular option for established manufacturers and distributors, Amazon vendors act as suppliers, selling their inventory (i.e. products) directly to Amazon at wholesale rates. Amazon then resells the products to customers under its own brand name, taking care of everything from pricing and shipping to customer service and returns.
It is not possible to apply to be an Amazon Vendor – registration is by invitation only, reserved for top sellers and well-known brands. Products being sold through Vendor Central will normally feature the phrase “ships from and sold by Amazon.com.” But you never know, one day you may receive an invitation!
Amazon Seller Central Account
Amazon Seller Central is suitable for individuals and any size of business. It is designed as an online marketplace for brands and merchants to sell products under their own name directly to Amazon customers. To sell on Amazon, you will need to choose a selling plan and set up an account on Seller Central.
Amazon Selling Plans
Amazon Seller Central offers two selling plans – a Basic Selling Plan (to sell a little) and a Professional Selling Plan (to sell a lot). You must choose the most suitable plan before creating an account.
Basic Selling Plan
Professional Selling Plan
|Ideal for individuals, casual or seasonal sellers, and very small businesses||Ideal for businesses with high-volume sales and/or those selling restricted products|
|Sell up to 35 items per month||Unlimited selling|
|‘Pay as you go’ pricing – £0.75 (+VAT) fee per item sold||No per-item fee|
|Additional referral fee percentage calculated on the total sales price||Referral fee percentage calculated on the total sales price|
|No monthly subscription fee||Subscription fee of £25 (+VAT) per month|
|Sell products in certain categories only||Sell in all categories|
|Add items to Amazon Marketplace one at a time||Add large batches of products using bulk tools|
|Amazon-set delivery rates for all products||Seller-set delivery rates for non-BMVD products (Books, Music, Video, and DVD)|
Which selling plan is right for you?
Your choice of selling plan will depend on two things: the products that you’re selling, and the number of items that you plan to sell each month.
If you’re selling products in a category requiring approval and/or you’re planning to sell more than 35 items per month, you will need to choose the Professional Selling Plan.
Here is a simple cost-benefit analysis to help you decide which selling plan in best:
- The Basic Selling plan offers a pay-as-you-go rate of £0.75 (+VAT) per order
- You would need a minimum of 34 sales/month to offset the £25.00 (+VAT) subscription fee for the Professional Selling Plan (34 x £0.75 = £25.50)
- If you have fewer than 34 sales per month, the Basic Selling Plan will likely be the best option for you.
You can easily switch between Amazon’s Basic and Professional selling plans at any time, downgrading if you’re not selling enough each month or decide to take a break, and upgrading if you need access to additional features or it becomes cost-effective to use the Professional Selling Plan at any point.
Please note: Amazon sometimes refers to the Basic Selling Plan as the ‘Individual’ selling plan, so don’t be thrown if you come across this term when you’re creating an account or reading articles on Amazon or other websites.
Create an Amazon Seller Account
Once you get to grips with the terminology, requirements, and restrictions, creating an Amazon Seller Account is (usually) quite straightforward. Essentially, there are three main steps:
1. Decide what you want to sell on Amazon
You will first need to choose the appropriate Amazon product category under which to list your products. More than 20 ‘open categories’ are available to both Basic and Professional sellers. Additional ‘categories requiring approval’ are available only to sellers with the Professional Selling Plan. We discuss this in more detail below.
2. Choose a selling plan
Basic Selling Plan or Professional Selling Plan?
3. Register and start listing
Once you’ve chosen your product category and selling plan, you are ready to create your Amazon Seller Account. You will need to provide the following information (where applicable):
- Location of business (or your country of residence if you don’t have a business)
- Type of business
- Sole proprietor (sole trader)
- Privately owned business (limited company or partnership)
- Publicly-listed business (PLC)
- State-owned business
- Individual (a person, rather than a business)
- Legal business name
- Your full name
- Registered business address
- Business phone number
- Company registration number
- Unique Taxpayer Reference (UTR) number
- Full name of the primary contact for the seller account
- Personal information for the primary contact person
- Country of citizenship
- Country of birth
- Date of birth
- ID (passport, UK driving licence, or National ID)
- Residential address
- Telephone number
- Verify your telephone number by entering a one-time pin that is provided to you by text message or voice call
- State whether primary contact is a beneficial owner of the business or a legal representative of the business
- Payment method (to pay your seller fees and to receive proceeds from sales)
- Store name for listing your products on Amazon Marketplace
Next, you will be asked to enable two-step verification to protect your account. Use your phone number to receive a ‘One Time Password’ by text message or telephone call and enter it when prompted.
When you have successfully completed the verification, you will be taken to your Seller Central dashboard where you can manage your account details and provide any required documentation, such as proof of ID, business documents, and VAT details. Once Amazon has received and validated your data, you can start listing your products.
Categories and products requiring approval on Amazon
To comply with all applicable laws and ensure that customers can shop with confidence, approval is required to sell certain products on Amazon. Given that Amazon sells a vast range of products, the list is extensive. Here is a brief overview of the types of listings that may need approval:
- Adult-oriented products
- Clothing (e.g. branded items)
- Drugs and dietary supplements
- Food & beverage items
- ‘Made in Italy’ products
- Music and DVDs
- Items in the Toys and Games category from November to the end of January
- Streaming Media Players
- Items in Amazon Handmade
Agreeing to Amazon’s Acceptable Usage Policy (AUP)
You are required to notify Amazon at the time of agreeing to the Acceptable Usage Policy (AUP) if you are planning to sell items in one of the following categories:
- Adult-oriented, erotic, and sexual health products
- Dietary supplements and nutritional products
- Non-prescription drugs
- Prescription and non-prescription eyewear
Amazon Payments Europe will have to perform additional checks to verify this information, which may delay the process. To select the relevant AUP category, you must:
- Click the ‘Settings’ tab on the top right of your Seller Central account, then click ‘Account Info’.
- Click on ‘View or Edit’ next to the option ‘Amazon Payments Europe Acceptable Use Policy’. You will find this tab in the first grey box that appears at the top of the page.
- Select the relevant category or categories. If you don’t want to sell in any of these specific AUP categories, no further action is required. Otherwise, follow the next step.
- If you want to sell goods in one of the specific AUP categories, you need to inform Amazon by selecting the relevant category in Seller Central.
What business documentation do I need to provide to Amazon?
If you’re creating an Amazon Seller Central account as a business (rather than as a private individual), you will be asked to provide certain documentation to verify your identity and the existence of your business (if applicable).
Private limited company
- Current appointments report / Company Report dated within the last 90 day
- Utility bill, bank statement, or credit card statement in the name of the business, dated within the past 90 days
- Articles of Association
- Memorandum of association or statement of capital
- HMRC correspondence that contains the partnership’s UTR number, name, and business address, and one of the following:
- Notice to complete a tax return
- Letter confirming the partnership’s registration with HMRC
- Most recent tax return of the partnership, which must include the UTR number and the name and business address of the partnership
- Utility bill or bank statement in the name of the business, dated within the past 90 days
- Partnership agreement
- Self Assessment welcome letter
- Class 2 National Insurance Contributions bill
- Certificate of registration for Value Added Tax (VAT)
- Correspondence from HMRC acknowledging UTR number
- Notice to complete Self Assessment Tax Return
- Utility bill, bank statement, or credit card statement in the name of the sole trader or trading name of the sole trader, dated within the past 90 days
- Governing document
- Current appointments report
- Charity Commission report
- Confirmed list of all trustees – must display full name and date of birth of each trustee
- Utility bill or bank statement in the name of the charity and including the registered address, dated within the past 90 days
Individual (private) sellers and primary contacts
- Full valid passport
- National Identity Card
- UK driver’s licence
- Utility bill, bank statement, or credit card statement addressed to the individual and dated within the past 90 days
You will provide the required information and/or documentation in your Amazon Seller Central account. Go to ‘Settings’ then ‘Account Info’ and select the sections that are highlighted in red to see what you need to provide.
It usually takes Amazon between 5–10 working days to verify information, but it can take longer. You may be able to sell on Amazon whilst your information is being verified, but this is subject to certain criteria. In some cases, you may have to wait until your information is verified before you are permitted to sell on Amazon.
Where can I get a copy of my ‘business registration extract’?
A business registration extract is an official document that confirms the registered details of a business. The document that you will need to provide for this purpose depends on your business structure.
If you decide to sell on Amazon as a UK-registered limited company or LLP, you can provide a Company Report. To obtain this document, follow these simple steps:
- Sign into your Companies House account at https://account.companieshouse.gov.uk/signin
- Enter your company name or company registration number in the search box
- Select the ‘View all’ tab
- Select ‘View company information snapshot’ at the bottom of the page
- Your company report will download to your computer device
If you decide to sell on Amazon as a sole trader or partnership, your UTR number may suffice as a business registration extract, but you might have to provide evidence by uploading a copy of a letter from HMRC that contains your UTR.
Uploading more than one document at a time
There is a limit to the number of documents that you can upload and submit for review. If you need to provide several documents, you may have to merge them into one document. You can do this by scanning each document, merging the scanned images into a Microsoft Word document, and creating a PDF.
Providing VAT details to Amazon
As per the laws governing EU member states, Amazon charges VAT on all orders delivered to customers within these EU countries. Whether registered as a sole trader or a limited company, your Amazon business may be subject to VAT registration in one or more countries.
If your Amazon business is set up in the UK, you will need to register for VAT in the UK if:
- You store inventory in the UK, and
- You sell these goods to UK-based consumers, and
- Your annual sales exceed the UK VAT threshold of £85,000
- If you sell goods to customers in other EU countries, you might also have to register for VAT separately in those EU countries
If your Amazon business is set up in a different EU country, you will need to register for VAT in the UK if:
- You store your inventory in the UK, or
- You sell to non-business consumers based in the UK, and
- Your annual sales exceed the UK distance selling VAT threshold of £70,000
If your Amazon business is set up outside the EU, you will need to register for VAT in the UK if:
- Items that you store in the UK are sold to EU customers
- If you sell to consumers in other EU countries, you might also have to register for VAT separately in those EU countries
You can add your VAT registration number(s) and upload your VAT certificate(s) for your Amazon business once you have created your seller account. We would strongly recommend using an accountant if you need to register your sole trader or limited company Amazon business for VAT because it is an incredibly complex issue.
Getting paid for your Amazon sales
When consumers buy goods from your Amazon business, they pay via Amazon Pay rather than directly to you. Amazon deducts the applicable fees based on your selling plan then transfers the remaining proceeds to the business bank account linked to your seller account.
To get paid for your Amazon sales using Amazon Pay, you must:
- Set up your bank account in Amazon Seller Central
- Ensure that you have a valid bank account or credit card number as your charge method in Seller Central
- Sell your goods using Amazon Pay buttons
- Dispatch your sold goods only to the addresses specified by the buyer and communicated by Amazon Pay
- Capture payments for your orders to collect payments from your buyers
Amazon Pay will transfer sales proceeds to your nominated bank account 14 days after the first business day (i.e. Monday-Friday) on which the corresponding purchases were made. If you set up (or change) your bank account at any time, your payments will be suspended for three days as a security measure.