August 22, 2019 by Andrew Minalto - 34 Comments

Amazon UK Seller Account: Sole Trader VS Ltd. Company

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Welcome back!

To follow up on last week’s post about Amazon UK seller account suspension, today, I want to cover the process of opening an account in more detail.

And, more specifically, what type of business you need to open an account, which type is best (sole trader or limited company) and how to make sure you don’t make a costly mistake by OVERPAYING tax on your Amazon profits!

You will need to decide which business type you will use from DAY ONE, as Amazon will ask you to select the corresponding business type on the account registration form. This is the first place where people make a mistake that causes problems later on with account verification, which can even result in an account suspension.

For those of you just starting a business on Amazon UK, there are two main business types to choose from:

  • Sole trader
  • Limited (Ltd.) company

Now, on Amazon’s sign-up page, this will be worded a bit differently:

  • UK sole proprietor (select this option if you’re a sole trader)
  • Business (select this option if you’re a Ltd. company)

In both cases, Amazon will ask you to provide your business information, including your company registration number if you’re a Ltd. company or a UTR number if you’re a sole trader. This information will be verified, so please don’t make up a fake business entity here. It won’t work.

In the UK, sole traders can also register a business name, but don’t bother with that if you’re planning to sell only on Amazon. Amazon does not accept such business names and will use your REAL name instead. So, there’s no point in registering a business name if you’re a sole trader.

Ok, with the basics covered, we can now move on to more details about which business registration form you should choose for your new Amazon UK FBA business. The question is more complex than you may think, as you should not only consider your current tax situation but also your accounting and business growth in the future. So, let’s dive into these sections one by one.

Taxes

The most important element in this puzzle is obviously taxes. We all hate them but can’t avoid paying them. You don’t have to be a math whiz to understand that the less you can pay in tax, the better it is for your bottom line. Choosing the wrong business type for your Amazon business can have a HUGE impact on your tax bill, so please read this section thoroughly and then carefully assess your personal situation to decide which business type is most suitable for you.

With Ltd. companies, the tax situation is fairly simple: you pay 19% corporation tax on your profits. That’s it.

It’s actually not a bad rate compared to other countries in Europe, some of which have taxes at 30% or more.

With sole traders, the situation is much more complex. First of all, understand that being a sole trader means that you’re basically self-employed AND all of your income is summed together. So, for example, if you make £20k a year from your job and £20k a year from your Amazon business, your taxable income is £40k.

This is important to understand because tax rates for sole traders can vary and are based on your total annual income. At the time of writing this article, in 2019, the current rates are:

  • Personal allowance (£12,500) – 0%
  • Basic rate (£12,501 to £50,000) – 20%
  • Higher rate (£50,001 to £150,000) – 40%

There can be slight variations for these tax brackets based on your marriage status, whether you have any other benefits, pension, etc. Also, with higher incomes, the personal allowance is smaller or even non-existent. But for most people, you can use these numbers to decide which business form is best for your Amazon business.

IMPORTANT! These tax rates only apply to the amount of money earned above the previous bracket. For example, if you make a profit of £22,500, you will be taxed at 20% on anything earned above your personal allowance (£12,500), which is £10,000. So, any profit ranging from £12,501 to £50,000 will be taxed at 20%. Then, anything earned above that will be taxed at 40%. So, if you make a profit of £60,000, not all of that is taxed at 40%. Only the final £10,000 of the £60,000 in this case will be taxed at the highest bracket of 40%.

I hope this is all clear!

Now, when you’re starting an Amazon business, you have to look carefully at your current situation. Do you have a job already? If so, what is your income from that? If it’s already close to £50k a year, then basically everything that you make from your Amazon business will be taxed at 40% (which is NOT good at all!).

On the other hand, if your salary is £20k a year, you know that you can make additional £30k from your Amazon business and you will only be taxed 20% on that, which is great. It’s almost as good as the corporation tax rate of 19%. It’s also worth noting that, in reality, you will pay even less in tax due to less money spent on…

Accounting

If this part was equally easy for both sole traders and Ltd. companies, everyone would go for the Ltd. option, right?

You could enjoy that 19% tax rate no matter how much you make. Unfortunately, it is not so simple.

Setting up as a sole trader is a very straightforward process. You can do it easily online by yourself. Just fill out the application, wait for your UTR number to come via post, and you’re all good to go! Keep account of all the income you receive and expenses you incur, then once a year, do your self-assessment tax returns to pay the tax owed. If you don’t want to do this on your own, you can pay an accountant a few hundred pounds to fill out these yearly tax returns for you.

With Ltd. companies, the situation is more complicated. First off, in order to set up the company, you will need to arrange specific company formation documents. You can still do this on your own online, but most people will struggle with the process and will have to seek professional assistance. There are online companies that can do this for you, but it will cost you some money.

Then, you need to address the accounting and bookkeeping process itself. It is much more complicated for Ltd. companies, so most people will have to pay an accountant £50 to £100+ a month to carry out this task. The same is true of the company’s yearly returns/reports. Unfortunately, most people won’t be able to do them and will have to pay an accountant to complete the task properly.

This means that unless you’re willing to do all this paperwork on your own, you’re looking at spending £1000 a year (or more) just on accounting services.

Is that a lot? Well, it depends on how much money your Amazon business makes. If you’re making just a few thousand pounds of profit per year, then yes, it is a lot! But if you make tens of thousands in profits, this won’t be a problem, especially when you take advantage of the much more favourable 19% corporation tax rate.

At the moment, just keep in mind that there is a huge difference in the bookkeeping process between these two business types, and this should be taken into account in your decision-making process. Unless, of course, you really like numbers, accounting, learning all the bookkeeping rules, etc. In that case, you probably won’t have to pay anyone to do these tasks for you.

Ok, now that taxes and accounting are covered, we can get straight into figuring out how to select the BEST business type when starting your own Amazon UK FBA business!

Which Business Type to Choose:
Sole Trader OR Ltd. Company?

Both options can work. If I were to choose, I would go with the Ltd. company from day one. Why? In the long term, if you plan on growing your business to a decent size, you will want to switch to Ltd. company anyways—no one likes to pay 40% tax on their profits!

Also, with a limited liability company, you separate your personal assets from those of the business, so if you get into debt or anything else goes wrong, your personal assets will be protected. This is not a very likely outcome for an Amazon FBA business, but still, it’s nice to have that protection and flexibility in place.

However, I’m also looking realistically at this whole situation. I know that many people are only aiming to create a side income on Amazon, a second income. Many don’t have a high-paying job (or don’t have a job at all), so reaching that £50k profit threshold to be taxed at 40% is not that easy. And even if you go slightly above that—say you make £60k a year—you will only be taxed 40% on the £10k that goes above the £50k bracket.

Starting out as a sole trader is quicker, easier and cheaper, which is why most of you will choose this setup for your Amazon business.

In the future, after a few years, when your business grows and your profit goes above that £50k threshold, then you can set up a Ltd. company and ask Amazon to change your account’s business type. Now, this is not a quick and easy process, but Amazon allows it and does it on a regular basis. Yes, they will ask for various documents, but it can be done.

The two situations where I definitely recommend going with the Ltd. company from day one are:

1) If your salary is close to or above £50k already. In that case, it simply doesn’t make sense to do this whole Amazon FBA thing as a sole trader. You will pay £4,000 in tax on every £10,000 you make, which is nonsense. And even if you make £10k from your Amazon business, paying for an accountant will be MUCH cheaper than paying a 40% tax rate.

2) If you have a big budget to start your Amazon business, have good experience with e-commerce, etc., and you know that you’ll reach the 40% tax bracket very quickly, then of course you will want to register as a Ltd. company from day one.

So, you have to know your current tax situation and future business plans for at least the next few years. I know that it is hard to project sales on Amazon, but if you’re starting out with just a £2k budget, it’s VERY unlikely that you will reach tens of thousands of pounds in profit in your first year. That’s not how it works. It takes time to grow your inventory, product range, capital, etc.

On the other hand, if you’re starting out with a £50k budget and strong previous selling experience (from eBay, for example), then you will most likely benefit from starting your Amazon business as a Ltd. company.

Conclusion

Ok, that’s about it. I have tried to keep this as simple as possible, even though it is not. There are many variables when we talk about accounting, including personal situations with tax credits and additional accounting perks when you have a Ltd. company. However, this article should at least give you a good understanding of the basics.

I didn’t talk about VAT in this article as I have a separate VAT for Amazon sellers guide here. But it doesn’t change much as you can be VAT registered (if you want/need to) as a sole trader or as a Ltd. company. Most people from the UK who are starting out on Amazon won’t register for VAT in their first year as their sales will be below the threshold of £85,000.

If you have any questions, feel free to leave them in the comments section below. I personally reply to all comments within 24 hours, Mon-Fri.

One thing: please note that I’m not a qualified accountant or tax advisor, so I won’t be able to help with specific tax-related issues. I have been outsourcing ALL of my accounting for the last 10+ years and can’t even imagine how could I do it on my own nowadays.

With that in mind, going with a Ltd. company from day one and outsourcing all of the accounting stuff may be the perfect solution for people who hate spreadsheets just as much as I do! 🙂


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34 Comments
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  1. Hi Andrew,

    Thanks for the article. Some great info.

    I am just starting the AmazonFba journey. I currently reside in another EU country but will most likely move back to the UK towards the end of 2020.
    Given that I currently have no other income I thought registering as a sole trader in the country I reside in would be better, then when we move to the UK I could set up the company and change the account name and address on Amazon…it does however seem like it could cause delays and trouble later on…

    Would you agree that setting up a company in the UK would be better from the start? I used to do property and product bookkeeping as part of my work so I think I might be able to do this to start with..

    Also how would the VAT registration work then? If residing in another EU country but trading in the UK would I still be VAT exempt for the threshold amount of £85K?

    Thanks very much for your help!

    1. Andrew Minalto

      Hi Marlena,

      Thanks for your comment.

      Yes, I recommend you set-up a Ltd.compamy (or register as a Sole Trader) in the UK, from day one. The account change won’t be as easy as you think and it could put your business at risk.

      Also, IF you register in the country you reside in, but plan on selling on Amazon UK, you will have to register for VAT from day one. On the other hand, if you set up an Ltd. company in the UK, you don’t have to register for VAT until you reach the £85k threshold.

      Hope this helps Marlena!

      Thanks,
      Andrew

  2. Hi Andrew
    Just want to say thank you for writing such a great article. I’ve been in analysis paralysis trying to decide which way to go on this. I’ve now decided. Thanks 🙂
    Jo

    1. Andrew Minalto

      You’re welcome Jo! Glad I can help 🙂

      Andrew

  3. Great article thank you. I am going ahead as a sole trader. Amazon have new strict rules regarding address ID, they want a utility bill for confirmation of address but my address is a post box address so I don’t have a utility bill. I’ve heard having an accountant can work around that, do you know anything about that at all? It’s finding the right accountant that I don’t know where to start with. Many thanks.

    1. Andrew Minalto

      Hi Emma,

      Thanks for your comment.

      No, sorry, I haven’t heard about a solution for that… you can find Amazon “friendly” accountants on this website:

      https://www.ukbusinessforums.co.uk/directory/

      Andrew

  4. Brandon Ellison

    Hey there Andrew I am glad i came across your website today. I am starting my European Amazon business and I want to open up a ltd for this. Online i see different things about having to have 7 people to start a company and what not, do you have an article about how to actually open up a ltd company? i am based in the US by the way and so i also wanted to ask if you knew of any websites to get one opened up for me i do not know the UK and what is trusted or not online. I hope you can reply . Ps. I am loving what I am reading on your website so far.

    1. Andrew Minalto

      Hi Brandon,

      Thanks for your comment.

      Why do you want to open a company in the UK? You don’t have to do that. You can use your US company and sell in Amazon EU marketplaces.

      There’s no need to complicate this and over-pay in accounting fees.

      Thanks,
      Andrew

  5. Hi Andrew,
    Great blog 👍
    Just a quick one, if you are a sole trader what documentation do you need to name a company? I read another of your blog about labelling requirements from China and that there must be contact details. In this case if you created a brand as a sole trader what address or contact details would you give as in this situation I wood be working from home and would not want to put personal details on it? Are you able to set up a company name as a sole trader for this purpose?
    Thanks a lot
    James

    1. Andrew Minalto

      Hi James,

      Thanks for your comment.

      As a Sole Trader, you essentially work under your name, not a company name. You can register a Trading As name, which can be your brand name, BUT Amazon does not take it into account. On Amazon, if you’re a Sole Trader, your full name and address will be listed on the seller profile page.

      For packaging needs, you can put the trading name on it, yes. Not sure about address though – it will still have to be the one you’re registered at, as a Sole Trader. Maybe you can get a separate business address, just like with Ltd. companies, but I don’t know details about how it works.

      Thanks,
      Andrew

  6. Hello, Andrew!
    Many thanks for every and each help that you give to us with these blog posts.
    I have a question. If I start my business on UK marketplace as a sole trader and after, let’s say, 2 years I’ll choose to move out UK to, let’s say, Italy do I have to change my business type from UK sole trader to sole trader/ltd company registered in Italy?

    Thanks,
    Marius.

    1. Andrew Minalto

      Hi Marius,

      Thanks for your comment.

      It depends on whatever you still stay a resident in the UK? It could be that you move away, but still remain a resident in the UK and can maintain your UK Sole Trader status. It’s even easier if you set up an Ltd. company now – you can then leave anywhere in the World, even change the residency country, but still maintain the Ltd. company in the UK.

      What you have to understand is that changing the business form with Amazon is not that easy. Amazon will ask you all kinds of documents, there can be months of delay in going through this process. So ideally you should know exactly your plans now, so you can best prepare for it. If you definitely plan on moving, I would recommend you set-up an Ltd. company now, in the UK, so you don’t have to change it when you move abroad.

      Thanks,
      Andrew

      1. Thank you for your answer. It really answered my “concern”.
        And again, many thanks for every and each thing that you make with this blog!

        All the best!

        Marius.

        1. Andrew Minalto

          You’re welcome Marius! 🙂

  7. karandeep dhunna

    Hi Andrew,

    Does the company name I use to set up my limited company (i.e. XXXX Ltd) have to be the same name (XXXX) used as my brand label on Amazon?

    Thanks
    Karan

    1. Andrew Minalto

      Hi Karan,

      No, absolutely not. Your company name can be something totally different.

      Usually, I recommend that people create a generic company name that can be used with any brands you create in the future.

      Thanks,
      Andrew

  8. hi andrew . your content is awesome, im, on jungle scout and about to launch a product.
    im greatful for some of your alibaba scam advice and would love advice on … do i have to have EORI number, no one seems to cover this huge important issue that can hold your products in customs for some time with storage fees also. please help me out andrew .
    thanks andy bax. uk

    1. Andrew Minalto

      Hi Andy,

      Thanks for your comment.

      I have a post about EORI number here:

      https://andrewminalto.com/eori-number/

      Thanks,
      Andrew

  9. Murat Gozudok

    I started as a sole trader to Amazon business. How can I change the amazon account details to LTD company.

    1. Andrew Minalto

      Hi Murat,

      You need to contact Amazon seller support and inform them about this and ask for the next steps you need to take to complete the change from Sole Trader to Ltd. company.

      Thanks,
      Andrew

  10. I specifically came here to read up on this topic because your explanations are so much easier to understand than Amazon’s own. Great breakdown, thanks.

    But I’m now a bit confused over my own situation. I don’t currently have a registered business but want to sell on Amazon for profit. Does this rule out being a private seller and should I instead opt in for sole trader?

    If so, would I need to pay for this? There appear to be websites apart from HMRC that provide this service and with some useful perks – is it a good idea to use them?

    Thanks so much for any help!

    1. Andrew Minalto

      Hi Huda,

      Thanks for your comment.

      You can sell on Amazon as an individual, BUT that account type has lots of limitations (restricted categories, no advertising allowed ect.). Personal accounts on Amazon are not meant to be used for business purpose.

      IF you have a business, you should register at least as a Sole Trader. You can do it for free, on your own, online. No need to pay anyone to do this as the process is very simple and straightforward.

      Thanks,
      Andrew

      1. Aaand done, many thanks!

        1. Andrew Minalto

          You’re welcome! 🙂

  11. Simon Harker

    Hi Andrew,

    Unless I missed it. You have missed a key point on the ltd company. After your initial tax free dividend. You are going to be paying a further 20 percent to get that money out as your wage, salary etc in personal tax.

    So it’s not as clear cut as your examples give.

    1. Andrew Minalto

      Yes, that is correct. There’s tax to pay on dividends.

      I have missed this point in the article altogether, sorry about the mess up!

      Andrew

  12. John McDonald

    Just to add to this. The corporation tax is owed and payable on the company’s profits but then the individual has to get that out of the company and you will incur further tax on that.
    * You can pay yourself a salary of about 8K per year – this will give you your NI contribution credit but you won’t have to pay NI
    * You can take dividends – and this is efficient. I think 2K is tax-free, up to about 37K is at 7.5% and then its 32.5%
    your accountant will work out how to optimise this. Check out https://www.gov.uk/tax-on-dividends

    1. Andrew Minalto

      Yes, that is correct. There’s tax to pay on dividends.

      I have missed this point in the article altogether, sorry about the mess up!

      Andrew

  13. Andrew
    If someone has a job and is in the 40% tax bracket and they start a business, it may be better to be a sole trader until such time that they make profits.
    As you know, with a business you can deduct legitimate business costs against your income which could result in accounting losses in the first year or two. These losses can be offset against the income a person gets from a job resulting in very welcome tax refunds!
    Regards
    Nazir

    1. Andrew Minalto

      Yes, that’s true Nazir, very good point!

      Thanks,
      Andrew

  14. Hi Andrew

    What if seller has registered company in another Eu country, like Sweden or Baltics?

    Would you suggest to open additional company in UK?

    Regards,
    Martynas

    1. Andrew Minalto

      Hi Martynas,

      Thanks for your comment.

      No, you don’t have/need to open a company in the UK – you can use your “local” company and sell on any Amazon platform you want.

      Thanks,
      Andrew

  15. Jae @ Gorilla ROI

    Hi Andrew. In the US we have a limited liability version called LLC. It’s not hard to apply for an LLC but what do you think of people using services like Legal Zoom to do this for them?

    1. Andrew Minalto

      Hi Jae,

      Thanks for your comment.

      I think it’s a good option for people who don’t want to deal with all the paperwork. We have lots of such companies in the UK too and they’re pretty cheap and can offer additional services, such as a business address, help with setting up a bank account, yearly tax returns etc.

      Can’t see any problems with using such companies.

      Thanks,
      Andrew

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