Ecommerce is behind a rapidly growing percentage of global retail sales, leading many to envision starting their own online business. But one area of ecommerce that demands professional input is accounting – this is absolutely essential if you want to keep on top of your business accounts and target growth.
In this article, we will look at several fundamental aspects of ecommerce that can be helped by an accountant.
Sole Trader or Limited Company?
Setting up an ecommerce business is relatively simple, as you can do it from home. There are huge online marketplaces such as Amazon, Shopify and Etsy you can use as your storefront and your smartphone can be your assistant.
It may seem, therefore, that sole trader is the way to go. But an accountant may think otherwise because a limited company setup may potentially be more tax-efficient. Setting up as a limited company will also reduce your liability because the risk goes onto the business rather than you personally.
There’s a reason limited companies are popular despite their complexity. An accountant can help you decide which is the better option for you.
Which is Better: Cash Basis or Accrual Accounting?
Cash basis accounting is the most basic form of maintaining your business accounts, whereby you only enter transactions when you send/receive money. However, it can make it difficult to track the amount you owe for stock, so it can be hard to tell if you are making a profit.
Many accountants will strongly recommend the accrual method for e-commerce retailers. This will account for purchases when the goods are received, even if the payment comes later. It makes it easier to monitor your income against your expenditure, but it is a more difficult accounting method for beginners.
Outsourced ecommerce bookkeeping can help you get set up and ensure you are using the most suitable accounting method for your business.
Business Tax Returns
If your turnover exceeds the tax threshold, you will likely have to register for VAT. This means submitting regular VAT returns and paying the VAT you collect, and accounting for this can become burdensome. It must always be accurate or you could face penalties from HMRC.
VAT has to be accounted for digitally, so software can cover much of the work, but an accountant can check and submit the data to ensure accuracy. This is particularly useful if you sell to customers outside of the UK.
You also need to think about your self-assessment as well as things like corporation tax returns and payroll requirements. As the complexity mounts, the services of outsourced ecommerce accounting can prove increasingly valuable.
Ecommerce Taxes for Overseas Sales
There are customs fees involved in selling within the EU, which have changed substantially since Brexit. If you want to ship to places like the US or Australia, another consideration will be Goods and Services Tax. Ecommerce has made VAT requirements for selling outside the EU slightly simpler, but it will depend on things like where your goods are located and the value of consignments.
Accountants are available to help you work out what schemes might benefit you and make those complex calculations on your behalf. The way platforms like Amazon work can add a further layer of complexity to the whole process.
An accountant can help you navigate this confusing world you will be working with in your daily operations.
Understanding your Ecommerce Earnings
Selling online means there will be various deductions involved with every payment you receive. You need to understand these deductions and account for them to ensure your taxes are correct.
With outsourced ecommerce accounting, you can get a better understanding of all this and plan effectively for growth.
Deductions you may see include shipping fees, refunds and service charges. You might also encounter issues like:
- Payments spanning multiple months or years
- Selling across different countries
- Thousands of transactions in a single deposit
- Platforms collecting tax on your behalf
- Multiple transaction types
An ecommerce accounting expert can help make sense of all the complexity and manage your accounts the right way
Want to Outsource Your Ecommerce Accounting? Get in Touch!
Outsourcing your ecommerce accounting helps you to focus more on growing the business without wondering if you are getting the financials right.
The things we’ve discussed in this guide may sound daunting but you don’t have to learn all the ins and outs of rules and regulations. With an accountant in your corner, you only need to know the basics, and you have an expert on hand whenever you feel confused.
Many accountants will understand the issues in this guide, but specialist ecommerce accountants will mean everything runs smoothly and efficiently. If you want to fulfil your entrepreneurial dreams with an ecommerce business and need help with the accountancy side, please get in touch today.