One issue we come across every day is Amazon, barring people access to sell while they change their account form a Sole trader to a limited company. If not done in the correct way, this could stop businesses in their tracks and the fear is that once profitable ASINS may never recover.
This article will discuss why you would want to change your Amazon from a Sole Trader to a Limited Company and how to mitigate the risk of Amazon removing your selling rights and destroying your business.
Sole Trader vs Limited Company for Amazon Businesses
Most Amazon sellers start off as a sole trader on Amazon. Why? Most believe that this is the easiest way to sell, and if it doesn’t work, they comply with the reporting rules of a limited company. This is a misconception, a sole trader still needs to create accounts for them to submit their self assessment to HMRC which is due on the 31 January every year. With a limited company, you will have to submit these accounts to companies house and submit a corporation tax return.
So why is a limited company better?
- If you set up a limited company, you are legally separate to the business. This includes the risks such as debts after business failure. Any debts you incur as a sole trader will follow you even after the business has folded.
- Tax efficiency, we describe a limited company as a tap for tax purposes. You will only pay corporation tax on your profit with a limited company. The key difference is when you take money out of the business. A sole trader has no choice but to report the profit and be subject to income tax. When you want to withdraw money from the business, you can choose when to do it. Most Amazon businesses reinvest all cash in reorders or new product lines, they do not need to take money out as a salary or a dividend. This means that you do not pay any money as income tax or dividend tax during this phase.
- You can use a registered company address when using a limited company. This is beneficial from a customer point of view, they may see a London address as more credible. It may also suit the business owner who doesn’t want their own address published, especially if there are clauses in their rental agreement or mortgage agreement.
- When you need to register for VAT in the UK and Europe, you as the sole trader is liable for the VAT bill, including if your business folds. When you register your Amazon business as a limited company, the company is liable for the VAT. Therefore, reducing the associated risks of failure.
- The ultimate goal for many Amazon businesses is an exit plan. Selling your business to a larger company and you recycling the money to either start a new business or retire in style. Using a limited company makes this a much easier and more attractive prospect for any potential buyer.
- Even if you sell the US or Europe, a UK limited company is the best way to register your Amazon business. You will not need a US LLC like some assume.
Why does Amazon suspend my account when I change from Sole Trader to Limited Company?
When you have registered for Amazon as a Sole Trader and your accountant has advised you to change to a limited company, Amazon suspends your account. This is because legally you have changed from one entity to another entity, they need to ensure that they know who he beneficial owner is before they can approve.
Most people receive this message
“We are currently reviewing the information that you have provided. We will let you know if we need any further information. Please note that while the legal entity change process is going on, you will be unable to sell until this is approved”
This means you cannot sell, so you need to consider the timing of this. Doing this in Q4 is not going to be a good idea? Ask yourself when the best time is to be knocked out of the game for days to weeks?
How long does it take to regain my suspended Amazon Seller Account?
Amazon is a faceless organisation, you are largely dealing with algorithms which flag your account. When someone actually needs to review this your case is placed in a queue and it can take weeks to resolve. If you provide the wrong or incomplete information then the clock resets and your suspension could be looking at a further couple of weeks. This could take days if you do it correctly or weeks if not.
What information should I have:
- Incorporation documents of your limited company
- Proof of address of director (you)
- Company articles
- Location of business
- Legal business name
- Your full name
- Registered business address
- Business phone number
- Company registration number from companies house
- Unique Taxpayer Reference (UTR) number for your limited company
- Full name of primary contact for the seller account
- Personal information for primary contact person
- Country of citizenship
- Country of birth
- Date of birth
- Identification (passport, UK driving licence, or National ID)
- Residential address
- Telephone number
- Verify your telephone number using OTP
- New bank details
- Shop name for listing your products on Amazon Seller Account
What should I do when registering a new Amazon Seller Account?
We normally advise most people to register for a limited company as it means that you don’t need to go through this painful stage when you become a successful Amazon Seller.
The cost of opening can be as little as £12 and its easier than you think to close your company if you choose to wind it up.
Most people regret registering as a sole trader, so do not make this mistake if you can avoid it.
If you want to discuss whether you should register for a sole trader or limited company then please contact us, we are specialist Amazon accountants.
If you need help changing your Amazon Seller account from a sole trader to a limited company then contact us and we can see what we can do.
