How To Avoid E-Commerce Taxation Pitfalls
Don't get landed with a big tax bill ...
E-commerce is, of course, a great way to start a business or for a bricks and mortar business to develop a wider reach. But you also have to be careful not to get e-commerce wrong and land yourself with an unexpected bill ...
E-commerce taxation can have many pitfalls, and you don't want to be landed with a big tax bill!
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The great thing about an online business is that you can reach out to customers anywhere, but that also gives you a problem. Because your business can reach out to customers in other countries, other tax and legal jurisdictions.
"Size isn't everything! A startup or small business can be just as visible as a big one!"
E-commerce accounts for around 10% of all UK sales, so there is plenty of business out there. Interestingly, a 2014 statistic was that women made up of 60% of all online shoppers.
My top e-commerce business tips:
You need to think about how you are going to record your e-commerce sales. Ideally with a link between your website and your accounting system so that information is automatically shared between the two.
This can easily be achieved with accounting systems like Xero as that software will link easily with a range of e-commerce website software. What you don't want to have to do is re-enter or duplicate entries from your e-commerce system into your accounting system.
Getting paid without hassle is important for any business, but especially for an e-commerce business.
There are plenty of payment solutions, but again you need to have that link between your payment solution and your accounting system to share information.
Again, Xero is useful here, and the key is to be able to connect the money received to the individual sales made automatically. Otherwise, this can get very confusing, and you end up not knowing who owes you money!
UK businesses have to account for UK VAT, but also you might have to account for VAT in other European countries if you sell into them.
One key is to track the address (including country) of your customers, so you know if you have a problem.
The second point to note here is that the VAT MOSS system will help to deal with some of the complexity of liaising with each of the VAT regimes in the rest of Europe.
Accounting for VAT on non-UK online sales can be different if you are selling to businesses or to individuals, and if you are selling goods or services.
Part of your sales process is to identify what sort of customer you are selling to and what the VAT rules are on the goods or services you sell.
VAT and European wide sales also bring further reporting complexities. If your sales are big enough you will have a monthly reporting requirement to HMRC. That is easy to deal with if you have properly integrated sales and accounting systems. Not having a good system brings problems.
Having a great website isn't as important as having great marketing to make people aware of your website.
With over 1.8 billion websites, the internet is a huge and crowded place. Make your site more visible through better SEO and good social media marketing. If you are going to spend money on starting your business, this is one of the places to spend it!
You many not need a great website, but you still need a good one. By all means, have something inexpensive and DIY to begin with, but remember your website is your shop window, so it needs to be attractive and easy to use.
Make sure you understand the Distance Selling Regulations as they give rights to your customers and responsibilities to businesses.
It's horrible to be landed with a big tax bill just because you're unsure of the rules or you're not recording your transactions correctly. The right e-commerce software linked to an accounting system such as Xero can make a real and positive difference to your success.
"Would you like to know more?"
If you need help with starting your e-commerce business or with understanding your taxation responsibilities then call me on 0333 335 0422 or click here to ping over an email and let's see how I can help.
Until next time ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.