To conduct a successful Amazon FBA business in the UK, it is not all about listing products and witnessing the sales increase. Although Amazon will take care of storage, shipping and customer support, it is your financials, and this should be taken care of with a greater level of complexity than most sellers probably realise.
Complying with VAT, to dealing with Amazon’s multi-tier pricing structures, the financial aspect of your FBA business needs to be focused upon. Throughout this blog post, we will be covering what Amazon FBA accounting is all about, the special issues which the Amazon UK seller encounters, and how hiring a specialist Amazon accountancy firm and using Amazon FBA-specific accounting software can swing it all in your favour.
FBA by Amazon
Fulfilment (FBA) by Amazon has transformed online retailing, as merchants can outsource storage facilities along with packaging them and shipping. Although this liberates sellers to concentrate on the sourcing and scaling areas, it brings on the tangled web of financial complexities and silently brings down profits.
- FBA accounting is not easy: Amazon fees, international sales, foreign currencies, and VAT requirements complicate everything.
- Bookkeeping errors or incorrect VAT registration may result in a fine, excess payment, or loss of growth.
- This is the reason why the Amazon FBA accounting foundations are the key to success.
- Luckily, Amazon accountants and Amazon accounting software are available today to automate and simplify the procedure.
Understanding the Basics of Amazon FBA Accounting
How FBA Accounting Differs from Traditional Retail:
Unlike traditional retail businesses, FBA sellers must deal with:
- Automated settlements every two weeks
- Dozens of micro-transactions in multiple currencies
- Stock held across various warehouses
- Cross-border tax compliance
Why Accurate Bookkeeping Matters:
Good accounting ensures:
- You know your real profit margins
- VAT returns are accurate and timely
- You always stay compliant with HMRC and avoid fines and penalties
- Confidently making decisions regarding pricing, sourcing, and investments.
The Role of Cash Flow & Inventory:
Your cash is tied up in inventory. Managing the timing of your purchases, ad spend, and payouts from Amazon is key to staying solvent, even when revenue appears high on paper.
Key Aspects of Amazon FBA Accounting
a. Tracking Expenses
Amazon Fees:
Amazon charges different types of fees, which include:
- Fulfilment and storage fees
- Long-term storage and removal order fees
- Advertising (especially Amazon PPC)
- Referral fees per sale
Each fee must be categorised correctly to reflect your true cost base.
Cost of Goods Sold (COGS):
COGS includes the cost to purchase or produce the product, shipping to Amazon, packaging, and duties. Failing to track COGS correctly:
- Inflates profit
- Distorts VAT return calculations
- Can mislead your reinvestment decisions
Operating Expenses:
Other business costs such as:
- Subscriptions of software (e.g., Helium 10, Jungle Scout)
- Accountant or consultancy fees
- Branding, photography, or legal services
Proper expense classification helps with budgeting and claiming allowable deductions.
b. Income Tracking
Sales Revenue:
Sales need to be reconciled by:
- Marketplace (UK, Germany, France, etc.)
- SKU/product
- Inclusive and exclusive of VAT
Amazon Reimbursements:
Amazon also reimburses you for damaged/lost inventory. These should be identified and reconciled, as they could impact inventory of your accounting and VAT returns.
Financial Statements Every Seller Needs
- Profit & Loss (P&L): Summarises your income, cost of goods sold (COGS) and expenses for a period.
- Balance Sheet: Indicates assets, such as inventory, and liabilities, such as VAT payable. It also indicates equity at a point in time.
- Cash Flow Statement: Assists you in gauging your liquidity, which is vital in terms of budgeting: stock purchases, advertisement expenses and VAT contributions.
Tax Compliance for UK FBA Sellers
VAT (Value Added Tax)
Challenges:
- Correctly charging the VAT rate (standard, reduced, zero-rated)
- Determining if you must register in other countries (especially if using Pan-EU FBA or shipping to the EU)
- Accounting for VAT on Amazon fees and services
- Filing UK VAT returns (quarterly) and possibly EU OSS returns
Solutions:
- Use Amazon accounting software with VAT tracking
- Hire Amazon accountants who understand eCommerce and international VAT rules
- Reconcile VAT on purchases and reclaim appropriately
Corporation Tax & Income Tax
You must also report:
- Corporation tax (for limited companies)
- Director salaries and dividends
- Income from all marketplaces
Make sure you’re planning for tax liabilities throughout the year, not just scrambling at year-end.
Inventory Management
Inventory Tracking
Accurate inventory levels are essential for:
- Calculating COGS
- Valuing your balance sheet
- Managing VAT on purchases
- Avoiding overselling or stockouts
Tools for Monitoring Stock
Look for software that can easily integrate with Amazon and your accounting platform (e.g., A2X with Xero, QuickBooks + Unleashed or Cin7).
Reconciliation: Getting the Numbers Right
Amazon Settlement Reports
Each report includes:
- Sales income
- Refunds
- Amazon fees
- VAT-inclusive and -exclusive sales
- Foreign exchange adjustments
Reconciling these with your bank deposits and accounting entries is non-negotiable for accurate reporting.
Accrual vs. Cash Accounting
Most FBA businesses should use accrual accounting, which matches income and expenses to the period they’re earned/incurred, not when cash changes hands. It is essential for accurate VAT and performance tracking.
Common Challenges for FBA Sellers
- Hidden Fees and Unclear Profit Margins
- Without software or an accountant, tracking all fees and net profit per SKU is difficult.
- Without software or an accountant, tracking all fees and net profit per SKU is difficult.
- VAT Complexity
- One of the most challenging aspects for Amazon sellers. Many miscalculate or misreport VAT, leading to HMRC issues.
- One of the most challenging aspects for Amazon sellers. Many miscalculate or misreport VAT, leading to HMRC issues.
- International Sales and Currency Conversion
- Selling in EUR or USD? FX conversions and foreign Amazon fees can distort your books.
- Selling in EUR or USD? FX conversions and foreign Amazon fees can distort your books.
- Poor Inventory Tracking
- Leads to inaccurate COGS and affects financial statements and VAT reclaim eligibility.
- Leads to inaccurate COGS and affects financial statements and VAT reclaim eligibility.
- Delayed or Incorrect Reconciliation
- Manually tracking settlements leads to data errors, missed income, and reporting delays.
- Manually tracking settlements leads to data errors, missed income, and reporting delays.
- No Real-Time Financial Data
- Decisions based on outdated or incomplete data often result in poor performance and unnecessary costs.
- Decisions based on outdated or incomplete data often result in poor performance and unnecessary costs.
Why You Need Amazon Accountants
Amazon accountants offer expertise in:
- Interpreting Amazon settlement data
- Filing accurate UK VAT returns (and OSS where needed)
- Advising on COGS, inventory, and tax planning
- Preparing year-end accounts and corporation tax filings
They also help:
- Prevent common mistakes (e.g., unclaimed reimbursements, unrecorded fees)
- Save time and reduce HMRC risk
- Strategically plan for business growth
How Amazon Accounting Software Can Help
Look for Amazon accounting software with features like:
- Integration with Amazon Seller Central
- Automatic VAT categorisation and calculation
- Settlement reconciliation
- Inventory tracking and cost reporting
- Multi-currency support
Top options include:
- A2X (pairs with Xero or QuickBooks)
- Xero (with FBA integrations)
- Link My Books (great for VAT-ready UK sellers)
- QuickBooks Online (for custom workflows and integrations)
Best Practices for FBA Accounting
- Utilise the Amazon-specific software: You should not use spreadsheets and standard software.
- Reconcile Periodically: This should be done at least once a month, consisting of settlements and movements of inventory.
- Remain VAT Compliant: Pay returns at the right time and maintain online records.
- Collaborate with Amazon Accountants: No fines, no mistakes, and no unclaimed deductions.
How E2E Accounting Can Help
At E2E Accounting, we support Amazon sellers with:
- FBA-specific bookkeeping and financial reporting
- VAT registration, returns, and OSS compliance
- Inventory and COGS tracking
- Integration with tools like A2X, Xero, and Link My Books
- Corporation tax, payroll, and business advisory services
We understand the intricacies of Amazon, and we work with sellers across various stages.
Wrapping Up
Amazon FBA might be automated on the surface, but your accounting definitely isn’t. To stay profitable, compliant, and competitive, you need:
- Clear financial visibility
- Accurate VAT reporting
- Strategic support
Don’t leave it to chance.
Contact E2E Accounting today to take control of your Amazon FBA finances—so you can focus on growing your business.
E2E Accounting – End-to-End Financial Expertise for Amazon Sellers.
