Amazon seller bookkeeping in the UK: settlements, fees, VAT and profit per product

Selling on Amazon, eBay, Etsy or Shopify looks like retail, but the bookkeeping behaves differently. Money does not arrive when you make a sale. It arrives in batches, net of fees, refunds, advertising and sometimes reserves. If you simply record the bank payout as your income, your sales are understated, your costs are invisible and your VAT and profit figures are wrong. This guide explains how to keep proper books for a marketplace business in the UK, step by step.

Why the bank statement is not enough

A typical Amazon payout is a single figure. Behind it sit dozens of sales, a collection of referral and fulfilment fees, refunds, storage charges, advertising costs and adjustments. The bank statement shows only the net result. To keep proper books you need to reconstruct what happened, and for that you use the platform's reports.

The reports you need

Settlement reports. Each marketplace produces a report for every payout period, listing sales, fees, refunds and adjustments in detail. This is the most important document for bookkeeping. Download it for every period.

Transaction and order reports. These show each order, with customer location, price, VAT and shipping, and are used for VAT analysis.

Fees and advertising reports. These break down the platform's charges, including FBA fees and advertising spend.

Inventory and stock reports. These show what you hold, including goods in the marketplace's warehouse.

Returns reports. These show refunds and returned goods.

How to record a settlement

For each payout period, record the settlement as a set of entries rather than a single deposit.

Item	How to record
Gross sales	Income, split by channel and, ideally, by product category
Shipping charged	Income
Marketplace fees	Expense: referral and selling fees
Fulfilment fees	Expense: FBA or fulfilment costs
Advertising	Expense: marketing
Refunds	Reduction in income
Reimbursements	Income or reduction in cost
Reserve held back	Balance sheet item until released
Payout to bank	Clears the clearing account

The usual approach is to use a clearing account for each marketplace. Each settlement posts the gross items to the clearing account, and the actual bank payout then clears it. When the clearing account is at nil, you know every sale, fee and refund has been captured. If it is not, something is missing. Several connectors can post settlements automatically, which saves hours every month. See our bank reconciliation service and post on how to reconcile a bank account.

Cost of goods and stock

Profit is not revenue minus fees. It is revenue minus the cost of the goods you sold, minus fees and other costs. To know the cost of goods sold you need to track what you paid for stock and how much remains at the end of each period.

• Record every stock purchase with the supplier invoice, including import duties and freight.
• Count stock regularly, including stock held at the marketplace's warehouses.
• Calculate the cost of goods sold as opening stock plus purchases less closing stock.
• Track cost per unit so you can see profit per product.

Without this, you cannot tell which products make money. Many sellers discover that their best-selling item is their least profitable once fees and returns are included.

VAT on marketplace sales

VAT is where marketplace businesses go wrong most often.

UK sellers selling to UK customers. If you are VAT registered, you charge VAT on UK sales, and the platform's reports show the VAT. You must register once taxable turnover passes £90,000. Many sellers register earlier voluntarily to reclaim VAT on stock. See when to register for VAT.

Platform fees. Fees charged by the marketplace usually include VAT, which VAT-registered sellers can reclaim. Download the fee invoices, which the platform provides.

Imports. Goods bought from overseas, for example from China, carry import VAT when they arrive. Registered sellers can usually reclaim it and can use postponed VAT accounting, which shows the import VAT on the return rather than paying it at the border. Keep the customs documents.

Sales to the EU. Selling to consumers in EU countries can create EU VAT obligations. Many sellers use the EU One Stop Shop scheme to report them.

Marketplace rules. Marketplaces now carry responsibility for collecting VAT on certain sales by overseas sellers to UK consumers. Whether the marketplace or you account for the VAT depends on where the seller is based and the value of the goods.

Our VAT guide and Making Tax Digital for VAT checklist cover the basics, and the page on bookkeeping for e-commerce sellers describes how we apply them.

Refunds, returns and reimbursements

Refunds reduce your income, and the associated VAT reduces your VAT due. Record them as negative sales, matched to the original order where possible, rather than as expenses. Marketplaces sometimes reimburse sellers for lost or damaged stock. Record the reimbursement against the relevant cost or as other income, and keep the supporting reports.

Reporting to HMRC: digital platform rules

Under digital platform reporting rules, online marketplaces collect seller details and report sellers' income to HMRC. That means HMRC can compare what the platform says you earned with what you declare. Your books must reconcile to the platform's totals, including gross sales before fees. If your income figure is lower than the report shows, expect questions. Keep the settlement reports for the full retention period. See how long to keep business records.

Multiple channels

If you sell on Amazon, eBay, Etsy and your own Shopify store, keep each channel in its own clearing account and income account. That lets you compare profit by channel and find the one that costs more than it earns. Payment processors such as PayPal and Stripe add another layer, so reconcile those too.

A monthly routine

1. Download settlement reports for each channel.
2. Post settlements to clearing accounts and reconcile them to bank payouts.
3. Record stock purchases and update stock levels.
4. Record advertising, shipping and packaging costs.
5. Reconcile VAT, including import VAT and any overseas sales.
6. Review gross margin by product and channel.
7. Reconcile the bank and payment processors.

Use our monthly bookkeeping checklist alongside this list.

Tools

Several apps connect marketplaces to accounting software and post settlements automatically, which saves time and reduces errors. They are worthwhile once you have more than a few dozen orders a month. Choose one that supports your marketplace, VAT treatment and accounting package. Our guide to choosing accounting software lists what to look for, and our blog on bank feeds versus manual entry explains the trade-offs.

Common mistakes

• Recording only the net payout as income
• Ignoring platform fees and VAT on fees
• Not tracking stock and cost of goods
• Forgetting import VAT
• Mixing up refunds and expenses
• Not reconciling payment processors
• Missing the VAT threshold because gross sales grew quickly
• Not downloading reports before they expire

Frequently asked questions

Do I need to declare Amazon income to HMRC?

Yes. If you trade regularly, income is taxable, and platforms report seller income to HMRC.

Should I record gross sales or the payout?

Record gross sales, with fees and refunds as separate items, so profit and VAT are accurate.

Can I reclaim VAT on Amazon fees?

If you are VAT registered, yes, using the VAT invoices the platform provides.

What is the trading allowance?

A £1,000 allowance for small amounts of trading income. Regular sellers usually exceed it.

Can you do my marketplace bookkeeping?

Yes. We reconcile each channel and report profit by product. Get an instant quote.