If you sell on Amazon, your profit is what HMRC taxes, not your sales. Every Amazon payout you see has already had referral fees, FBA fees, storage and advertising taken out, and those costs are deductible if you record them properly.
The problem is that Amazon's reports bundle everything together, and a lot of sellers either miss legitimate deductions or claim things they shouldn't. Both are expensive.
This guide gives you the full list of allowable expenses for a UK Amazon seller, then walks through the genuine grey areas: VAT on Amazon's own fees, the £135 import rule, postponed VAT accounting, and whether to use the cash basis. Figures are for the 2025/26 tax year, with the gov.uk source for each rule listed at the end.
If you run an Amazon business, our accounting service for Amazon FBA sellers is built around exactly these numbers.
What counts as an allowable expense for an Amazon seller?
An expense is allowable if it is incurred "wholly and exclusively" for your business. That is the core HMRC test, and it applies to sole traders and limited companies alike. If a cost is part business and part personal, you can only claim the business proportion.
HMRC groups self-employed expenses into broad categories. For an Amazon seller, the ones that matter most are below.
Which costs can a UK Amazon seller claim?
- Cost of stock and raw materials. What you pay for the products you sell on, plus packaging and labelling. This is usually the single largest deduction.
- Amazon's own fees. Referral (commission) fees, FBA fulfilment fees, monthly storage fees, long-term storage fees, the Professional selling plan subscription, removal and disposal fees, and refund administration fees.
- Advertising and marketing. Sponsored Products, Sponsored Brands, off-Amazon ads, influencer and PPC spend.
- Shipping and freight. Inbound freight to Amazon's warehouses, customs clearance charges, courier costs for self-fulfilled orders.
- Software and subscriptions. Repricers, keyword and research tools, inventory and accounting software, photo editing.
- Professional fees. Accountancy, bookkeeping, VAT return preparation, and legal fees that relate to the trade.
- Office and admin costs. Stationery, phone and broadband (business proportion), postage.
- Travel. Business mileage or fares to suppliers, trade shows and the post office. Not your normal commute.
- Use of home. A fair proportion of household running costs if you work from home, or HMRC's flat rate (more on this below).
- Bank and financial charges. Business bank fees, payment processing charges, and interest on business borrowing.
What you cannot claim
- The personal-use share of any mixed cost (your own broadband, your car for the school run).
- Everyday clothing, even if you only wear it for work. HMRC allows uniforms and protective clothing, not ordinary clothes.
- Fines and penalties, including HMRC late-filing penalties.
- Client or supplier entertaining.
- Your own drawings, or for a limited company, dividends.
- The cost of buying capital assets if you are on the cash basis (you claim those differently, see below).
How do you handle VAT on Amazon's seller fees?
Short answer: since 1 August 2024, Amazon charges UK VAT at 20% on its seller fees to UK-established sellers, so a VAT-registered seller now reclaims that VAT on their VAT return instead of applying the reverse charge.
Before August 2024, Amazon billed UK sellers from Amazon Services Europe in Luxembourg. Because the supplier had no UK establishment, the fees fell under the reverse charge: you accounted for the VAT yourself in boxes 1 and 4 of your return, with no cash actually changing hands.
From 1 August 2024 the billing entity changed to one with a UK branch, so Amazon now adds 20% VAT to the fees directly. If you are VAT registered, you reclaim that input VAT in the normal way. If you are not VAT registered, the change made your Amazon fees 20% more expensive overnight, because you cannot recover the VAT.
This is the single most common thing we see recorded wrongly after the change. Sellers who kept applying the reverse charge ended up double counting. Check that your bookkeeping treats post-August-2024 Amazon fees as standard-rated UK purchases with recoverable VAT.
How does the £135 rule affect importing your stock?
If you import goods into the UK, the £135 consignment value decides where VAT is charged.
For consignments of goods valued at £135 or less sold directly to a UK consumer, the seller charges and accounts for UK VAT at the point of sale rather than paying import VAT at the border. The £135 is the value of the whole consignment, not each item, and it excludes transport and insurance shown separately.
For consignments over £135, normal import VAT and customs rules apply when the goods enter the UK. Most FBA sellers shipping a pallet of stock in bulk are well over £135, so they pay import VAT at the border and then recover it (see postponed VAT accounting below).
There is a separate rule worth knowing if you sell from overseas through Amazon. Where an online marketplace facilitates the sale, the marketplace, not you, is often the "deemed supplier" liable for the UK VAT on the sale. That applies to goods of £135 or less located outside the UK at the point of sale, and to goods of any value already in the UK that are sold by a seller not established in the UK. If you are a UK-established seller selling your own UK stock, this deemed-supplier rule does not shift the VAT onto Amazon, you account for it yourself.
What is postponed VAT accounting and why does it matter for FBA?
If you are VAT registered and import stock, postponed VAT accounting (PVA) lets you account for import VAT on your VAT return instead of paying it at the border and waiting to reclaim it. For a cash-tight FBA business bringing in containers, that is a real working-capital saving.
Here is how it lands on your VAT return, using your monthly postponed import VAT statement (which HMRC publishes online, usually around the sixth working day of the following month):
| VAT return box | What you enter under PVA |
|---|---|
| Box 1 | Import VAT due from your monthly PVA statement |
| Box 4 | The same import VAT reclaimed as input tax (if fully taxable) |
| Box 7 | The net (ex-VAT) value of the imported goods |
Because the same figure goes in Box 1 and Box 4, the net VAT effect is nil for a fully taxable business. You declare the import VAT and reclaim it in the same return.
Without PVA, you instead pay import VAT at the border and reclaim it later using a C79 import VAT certificate as your evidence. The C79 is the older paper-trail route; PVA is the cash-flow-friendly one. You choose PVA at the point of import (your freight agent ticks it on the customs declaration).
Should an Amazon seller use the cash basis or traditional accounting?
For sole traders, the cash basis is now the default. From 6 April 2024 it became the standard method for self-employed people and partnerships, and the old turnover limits were removed, so you can stay on it as you grow. The previous £500 cap on deducting interest was also scrapped.
Under the cash basis you record income when the money actually reaches you and expenses when you actually pay them. That keeps things simple, but it has a catch for stock-heavy Amazon businesses: you only get tax relief for stock in the period you pay for it, which can distort profit if you buy big and sell slowly.
Traditional (accruals) accounting matches income and costs to the period they relate to, including closing stock. Many growing FBA sellers prefer accruals because it gives a truer profit figure and handles inventory properly. You can opt out of the cash basis to use accruals.
Limited companies cannot use the cash basis at all, they always prepare accruals accounts.
How do capital purchases work under each method?
If you buy equipment, a laptop, a label printer or a van, the treatment depends on your method.
Under accruals accounting you claim capital allowances, and most equipment qualifies for the Annual Investment Allowance, which gives 100% relief on up to £1,000,000 of qualifying plant and machinery in the year of purchase.
Under the cash basis you simply deduct most equipment as an ordinary expense when you pay for it. The exception is a car, which still goes through capital allowances even on the cash basis.
Illustrative example: turning an Amazon payout into taxable profit
Illustrative example. Priya is a UK-established sole trader selling homeware through Amazon FBA. She is VAT registered and uses accruals accounting. Over the 2025/26 tax year her figures are:
| Item | Amount |
|---|---|
| Gross sales (ex-VAT) | £180,000 |
| Cost of goods sold | £72,000 |
| Amazon referral and FBA fees (ex-VAT) | £36,000 |
| Advertising (Sponsored Products) | £14,000 |
| Inbound freight and customs charges | £6,000 |
| Software and subscriptions | £1,800 |
| Accountancy fees | £1,500 |
| Use of home (flat rate, 101+ hours, £26 x 12) | £312 |
| Total allowable expenses | £131,612 |
| Taxable profit | £48,388 |
Her taxable profit is £180,000 minus £131,612, which is £48,388. The VAT on her Amazon fees and freight is reclaimed separately on her VAT returns, so the expense figures above are all net of VAT. The £26 monthly use-of-home flat rate (for 101 or more hours of business use a month) keeps her home claim simple and defensible.
If Priya were not VAT registered, the Amazon fees and freight would be recorded VAT-inclusive, increasing those costs by 20% and reducing her profit accordingly.
The grey areas, settled
A few costs come up again and again where the answer is "it depends". Here is how we treat them in practice.
- Home office furniture and a dedicated desk. Allowable as a business asset if used for the business, but if you also claim the use-of-home flat rate, you cannot double count the same running costs. The flat rate covers utilities, not equipment.
- Your mobile phone. If the contract is in the business name and used for the business, the cost is allowable. A personal contract gets the business-use proportion only.
- A car used for collections and supplier visits. Claim either the simplified mileage rate (45p per mile for the first 10,000 business miles, then 25p) or actual running costs plus capital allowances, but not both. Pick one method per vehicle and stick with it.
- Pre-trading costs. Stock, samples and software bought in the months before your first sale are generally allowable, treated as incurred on the first day of trading.
- Subscriptions you barely use. If a tool is genuinely for the business it is allowable even if usage is light, but be ready to show the business purpose. Cancelled-but-still-billed subscriptions are still a cost you paid, so still deductible.
When a cost is truly mixed and there is no obvious split, agree a reasonable, consistent basis and document it. HMRC accepts a fair apportionment far more readily than a round number with no reasoning behind it.
Frequently asked questions
Can I claim Amazon FBA fees as an expense?
Yes. FBA fulfilment fees, storage fees, referral fees and the Professional selling plan subscription are all allowable business expenses. Since 1 August 2024 Amazon adds 20% UK VAT to these fees for UK-established sellers, which a VAT-registered seller reclaims on their VAT return.
Do I charge VAT on Amazon sales if I am not registered?
No. You only charge VAT once you are VAT registered. You must register if your VAT taxable turnover goes over £90,000 in any rolling 12-month period. Below that, registration is voluntary, though many importers register early to recover import VAT.
Can I use the cash basis as an Amazon sole trader?
Yes, and it is the default for sole traders from 6 April 2024 with no turnover limit. But because the cash basis gives stock relief only when you pay for stock, many growing FBA sellers opt out and use traditional accruals accounting for a truer profit figure.
How do I reclaim import VAT on stock shipped to FBA?
If you are VAT registered, use postponed VAT accounting: declare the import VAT in Box 1 and reclaim it in Box 4 of the same VAT return, using your monthly postponed import VAT statement. Alternatively you pay import VAT at the border and reclaim it later using your C79 certificate.
Is everyday clothing I wear for work allowable?
No. HMRC allows uniforms and protective clothing only. Ordinary clothes are not allowable even if you bought them specifically for the business.
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