Published: 14th December 2025
Running an online shop or ecommerce business can be incredibly rewarding, but it also comes with specific bookkeeping and tax reporting responsibilities — especially in the UK. Whether you sell on marketplaces like eBay, Etsy or Amazon, or operate your own Shopify or WooCommerce store, understanding how HM Revenue & Customs (HMRC) treats your income and what records you must keep is essential to staying compliant and profitable.
In this episode of The BookkeepingPackages Podcast, we explore the key elements of ecommerce bookkeeping for UK sellers, including how to record income, track expenses, understand the trading allowance, deal with VAT, and prepare accurate accounts that stand up to HMRC scrutiny.
Accurate bookkeeping does more than help you file tax returns on time. It gives you a clear picture of your financial performance, helps you plan for tax liabilities, and supports confident decision-making for growth.
Understanding When You’re Trading and What Counts as Income
Before diving into bookkeeping, it’s vital to clarify what HMRC considers trading income. Selling items online can range from occasional personal sales (like decluttering old possessions) to a full-blown ecommerce business. When you regularly buy or make goods with the intention to sell and make a profit, HMRC considers this trading — and you must report it.
HMRC’s guidance explains that selling goods or services on a digital platform is treated as trading if you’re doing it to make money and not simply selling items you owned personally with no intention of profit. GOV.UK
Your total sales income — before expenses — must be included in your trading records. HMRC also expects you to record income from multiple channels clearly, whether it’s marketplace sales, direct website sales, digital products, or fees for services provided online.
Trading Allowance and When to Tell HMRC
In the UK, individuals and sole traders can earn up to £1,000 a year from trading activities before needing to report that income to HMRC. This is known as the trading allowance. If your gross ecommerce income (before expenses) exceeds this allowance, you must register with HMRC and complete a Self Assessment tax return. LITRG
It’s worth noting that the £1,000 threshold applies to trading income only — not personal sales of belongings — and all trading income counts together. So if you sell on multiple platforms and the combined income crosses £1,000, you need to report it.
Even if you don’t owe tax because your income remains under personal allowances, maintaining accurate records is recommended so you can demonstrate compliance and avoid confusion at year end.
Recording Ecommerce Income and Expenses
For any online business, good bookkeeping starts with categorising your transactions correctly. Your accounting records should include:
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Sales income split by channel (e.g., eBay, Etsy, Shopify)
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Platform fees and commissions charged by marketplaces
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Shipping and delivery costs
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Payment processing fees (e.g., Stripe, PayPal)
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Product costs and inventory purchases
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Refunds and returns
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Other overheads (hosting, marketing, software) mettle.co.uk
Recording these categories separately helps you calculate net profit accurately, which is the figure HMRC will base your tax on.
Using ecommerce-friendly bookkeeping software makes it easier to map marketplace payouts to sales and fees — especially when payments arrive aggregated (e.g., a single payout containing multiple transactions).
VAT Considerations for Online Sellers
VAT (Value Added Tax) is a critical consideration once your taxable turnover exceeds the UK VAT registration threshold (currently £90,000). If you exceed this level:
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You must register for VAT with HMRC
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Charge VAT on your sales where applicable
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Submit regular VAT returns
HMRC’s online selling guidance also reminds sellers to check VAT obligations on distance sales and marketplace sales. GOV.UK
Even if you’re below the threshold, some sellers choose to register voluntarily to reclaim VAT on business purchases — but this requires careful planning and bookkeeping to ensure compliance.
Keeping Digital Records for Compliance and Self Assessment
HMRC and UK tax law expect you to keep accurate, digital records of all your ecommerce transactions. This means organising receipts, invoices, sales reports, bank statements, and records of digital payments so they can be easily retrieved if HMRC asks to see them.
HMRC’s Making Tax Digital (MTD) initiative is gradually expanding to require digital record keeping and quarterly reporting for many sole traders and small businesses. Even if not mandatory yet for your situation, adopting digital accounting practices now will make year-end reporting smoother and more compliant.
Common digital record-keeping practices include:
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Syncing ecommerce platforms with cloud accounting software
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Reconciling marketplace payouts to recorded sales
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Separating personal and business bank accounts
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Storing receipts in digital formats with clear labels
These habits not only support compliance but also reduce errors and provide real-time clarity on your profit and cash flow.
Practical Bookkeeping Tips for Online Retail Success
To stay on top of your ecommerce bookkeeping:
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Reconcile your sales channels weekly to your accounting records
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Label all transactions clearly with source and date
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Track inventory and cost of goods sold (COGS) to inform profit margins
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Review your expenses monthly to maximise allowable deductions
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Prepare quarterly summaries to avoid year-end surprises
These practices not only keep your financial house in order but also support better forecasting and strategic decisions.
Conclusion — Clarity in Books Leads to Clarity in Growth
Successful ecommerce bookkeeping is about more than tax compliance — it’s about understanding your business’s financial health so you can scale with confidence. From knowing when you must report income to HMRC to correctly recording expenses and VAT, solid bookkeeping protects you and supports long-term success.
If you’d like expert help tailored to your online retail bookkeeping and HMRC compliance needs, the team at BookkeepingPackages.co.uk is here to support you.
About the Author
Stuart Kerr is the founder and lead correspondent at BookkeepingPackages.co.uk, where he helps UK small business owners, freelancers, landlords, charities, and ecommerce sellers streamline their financial admin with clarity. With over a decade of experience in bookkeeping, tax compliance and business finance strategy, Stuart provides clear, practical guidance to help organisations grow with confidence.
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