Shopify Accounting UK: A Complete Guide for Sellers

Running a Shopify store is the easy part. Keeping the books straight, charging the right VAT, working out your real profit and filing on time is where most sellers come unstuck.

Shopify gives you sales data, but it isn't an accounting system. It won't file your VAT return, work out your Cost of Goods Sold, or tell HMRC what you owe. That's on you (or your accountant).

This guide walks through the lot: tracking revenue across channels, getting VAT right, calculating COGS, claiming expenses, reconciling payouts and meeting every deadline. The figures are for the 2025/26 tax year. If you'd rather hand it over, we help ecommerce businesses and Shopify sellers with exactly this.

Do you need a Shopify accountant? {#do-you-need-a-shopify-accountant}

Maybe not on day one. But Shopify selling throws up problems that catch out people who'd happily do their own books for a simple service business.

You're juggling several payment routes (Shopify Payments, and often Stripe or PayPal), each with its own fee structure. You might sell across more than one channel. You hold stock, so you need to track COGS. And once you cross the VAT threshold, you're into quarterly returns and Making Tax Digital.

You can usually handle it yourself if: your turnover is modest, you sell mostly in the UK, you're not VAT registered yet, and you're comfortable in accounting software.

It's worth getting help once: you're approaching the £90,000 VAT threshold, you're already VAT registered, you sell internationally, you run multiple channels, or you want advice on the most tax-efficient structure.

If that's you, talk to a Zmartly accountant about ecommerce bookkeeping. We'll set up the integrations so the numbers look after themselves.

How do I track sales revenue on Shopify? {#track-sales}

Sales revenue is the total income from products you sell over a period. Getting it right matters for profit, for tax and for sensible decisions about your store.

Track each sales channel separately

A sales channel is any place you sell: your Shopify store, a marketplace, a social shop, or in person via Shopify POS. Record revenue per channel so you can see which ones actually make money, not just which ones look busy.

Account for payment gateway fees

Payment gateways move money from your customer to your bank, and they take a cut. The exact percentage depends on your plan and provider, so check your own Shopify and processor statements rather than relying on a headline figure.

The important accounting point is what you record. For every sale you have three numbers:

• Gross sales (the full amount the customer paid, including VAT)
• Transaction fees (recorded as a business expense)
• Net payout (what actually lands in your bank)

Illustrative example. A customer pays £100 on a VAT-registered store. The £100 includes £16.67 of VAT (one-sixth of the gross price at the 20% standard rate). Say the processor takes £1.80 in fees, so £98.20 reaches your bank.

For your accounts and for HMRC, you record the £100 gross sale as revenue and the £1.80 fee as an expense, not just the £98.20 net. Recording only the net understates both your turnover and your deductible costs, and it can quietly push you past the VAT threshold without you noticing.

Convert foreign-currency sales to sterling

If you sell in other currencies, convert each sale to sterling for UK tax using the exchange rate on the transaction date or HMRC's published monthly rates. Track any conversion fees as expenses, and record currency gains or losses too.

How do I record refunds, returns and discounts? {#refunds}

Talk to an e-commerce accountant →

Gross sales tell you what came in. To find your net sales (what you keep), you have to account for refunds and discounts.

Refunds and returns

When you refund a customer, Shopify adjusts your sales figures, but the payment processor usually doesn't hand back its fee. So you reduce revenue by the refunded amount, leave the original fee sitting as an expense, and if you're VAT registered, reduce the output VAT you charged on that sale.

Illustrative example. You refund the full £100 sale above. You reduce revenue by £100, you reduce output VAT by £16.67, and the £1.80 fee stays as a cost you can't recover.

Discounts and promo codes

Record the full price as revenue and the discount as a separate line, rather than just booking the discounted amount. So a £100 product sold with 20% off shows as £100 revenue, a £20 discount and £80 net. That way you can actually see what your promotions cost you.

What are the VAT rules for UK Shopify sellers? {#vat}

VAT is the part of ecommerce accounting that trips up the most sellers, especially once you sell across borders.

When do I have to register for VAT?

You must register for VAT once your taxable turnover goes over £90,000 in any rolling 12-month period (the current threshold). You can also register voluntarily below that to reclaim VAT on costs like Shopify fees, stock and advertising.

There's an important catch for overseas sellers. If your business isn't established in the UK but you sell goods that are in the UK at the point of sale, there's no threshold: you must register and account for VAT. You can run the numbers on our VAT-aware income tools once you know where you stand.

How much VAT do I charge (output VAT)?

If you're VAT registered and your goods are in the UK when sold, you charge the 20% standard rate to UK customers. Some goods are zero-rated (most children's clothing, most books and printed matter), so check the category before you assume 20%.

For goods sent from outside the UK direct to UK customers, the rules turn on the consignment value:

• £135 or less: you, the seller, charge and account for UK supply VAT at the point of sale.
• Over £135: normal import VAT and customs rules apply at the border instead.

The £135 is the consignment's intrinsic value (the sale price, excluding transport and insurance unless they're built into the price), not the value of each item.

What VAT can I reclaim (input VAT)?

Once registered, you reclaim input VAT on business costs that carry it: Shopify and app subscriptions where VAT applies, payment fees, advertising, stock from VAT-registered suppliers, packaging and your accounting software. Keep every VAT invoice for at least six years.

VAT returns and Making Tax Digital

VAT-registered businesses file returns (usually quarterly), keep digital records and submit through MTD-compatible software. Making Tax Digital for VAT is mandatory for all VAT-registered businesses. Your return and payment are due one calendar month and seven days after the end of each VAT period.

Are VAT schemes worth it?

Two schemes come up often:

• Flat Rate Scheme. You can join if your VAT turnover is £150,000 or less (excluding VAT), and you pay HMRC a fixed percentage of your VAT-inclusive sales instead of tracking input VAT. The percentage depends on your trade sector and ranges widely. Crucially, most product sellers with low costs count as a "limited cost business" and pay 16.5% regardless of sector, which usually makes the scheme a poor fit for stock-based ecommerce. Model it before you opt in.
• Cash Accounting Scheme. You account for VAT when you're paid rather than when you invoice. For Shopify sellers paid within days, it rarely changes much.

If VAT is eating your evenings, our VAT and tax advisory team can pick the right scheme and run the returns.

How do I calculate Cost of Goods Sold (COGS)? {#cogs}

COGS is every direct cost of getting the products you sold into customers' hands. It's the figure that turns "revenue" into "gross profit".

The formula

COGS = Opening Inventory + Purchases − Closing Inventory

• Opening inventory: stock value at the start of the period
• Purchases: stock bought during the period
• Closing inventory: stock value at the end of the period

Why it matters

Gross profit is Total Sales Revenue − COGS.

Illustrative example. On £100,000 of sales with £35,000 of COGS, your gross profit is £65,000, a 65% gross margin. In other words, every £1 of sales leaves 65p before you've paid Shopify fees, marketing and overheads. Watch that margin month to month: it's the earliest warning that pricing or supplier costs are slipping.

What goes in (and what doesn't)

Include in COGS: product or manufacturing cost, inbound shipping to get stock to you, import duties, packaging used on sold items, and direct labour to make products.

Keep out of COGS (these are operating expenses): Shopify subscription, transaction fees, marketing, outbound shipping to customers, and apps or software.

Inventory valuation

Pick a method and stick to it. FIFO (first in, first out) assumes your oldest stock sells first and suits most sellers, especially with seasonal or perishable lines. Weighted average cost averages your stock cost and suits steady pricing. Consistency matters, so don't switch on a whim.

What expenses can I claim as a Shopify seller? {#expenses}

Allowable business expenses reduce your taxable profit, so tracking them properly is money in your pocket. The test is that a cost is incurred wholly and exclusively for the business.

Common Shopify expenses include:

• Platform and payment costs: Shopify subscription, transaction fees, paid apps and plugins
• Marketing: paid ads, email marketing tools, influencer and content costs
• Fulfilment: packaging, postage, and third-party logistics (pick, pack and storage)
• Software and professional fees: accounting software, accountant and legal fees
• Equipment: computers, phones and photography kit
• Home office: either HMRC's simplified flat rate or a fair proportion of your actual household costs
• Other: business insurance and business banking charges

Keep COGS separate from these operating expenses, as above. If you're unsure where something sits, our bookkeeping team sets up categories that map straight to your tax return.

What income tax do I pay on Shopify sales? {#income-tax}

This depends on how your business is set up.

Sole trader (Self Assessment)

As a sole trader you file a Self Assessment return, report your net profit (revenue minus expenses and COGS), and pay income tax and National Insurance on it.

Income Tax bands for 2025/26 (rest of UK; Scotland sets its own):

The Personal Allowance tapers away by £1 for every £2 of income over £100,000, reaching nil at £125,140.

Class 4 National Insurance for 2025/26:

Class 2 NIC is no longer a flat weekly charge: if your profits are at or above the Small Profits Threshold (£6,845 for 2025/26) you're treated as having paid it, so your NI record is protected at no cost.

Want a quick estimate before year end? Our self-employed tax calculator does the maths.

Limited company (Corporation Tax)

Through a limited company you file a CT600, pay Corporation Tax on profits, and typically pay yourself with a salary and dividends.

Corporation Tax for the financial year from 1 April 2025:

Marginal Relief eases the jump between 19% and 25% for profits in the middle band. Our corporation tax service handles the calculation and the filing.

How do I reconcile Shopify payouts and keep records? {#reconcile}

Reconciliation is just checking that what Shopify says you sold matches what hit your bank.

Shopify pays out from your payment processor every few days, after deducting fees. For each payout, match the gross sales, the fees deducted and the net amount to the deposit on your bank statement.

Illustrative example. Over three days you take £1,500 in gross sales and the processor deducts £27 in fees, so the net payout is £1,473. You then confirm exactly £1,473 landed in your bank.

Shopify's payout report (under Analytics, then Reports, then Finances) breaks down gross sales, refunds, fees, adjustments and the net payout. Export it, bring it into your accounting software, and match it off at least once a month so discrepancies don't pile up.

For Making Tax Digital, VAT-registered businesses must keep digital records in MTD-compatible software and retain records for six years. Keep payout reports, purchase and VAT invoices, bank statements and receipts.

What financial reports should I run? {#reports}

Don't wait for year end to find out how you're doing. Three reports tell you almost everything:

• Profit and Loss (monthly or quarterly): revenue, COGS and expenses, so you can see gross, operating and net profit and spot margins drifting.
• Cash Flow (monthly): money in versus money out. Vital when you pay for stock and ads up front, well before the sales come in.
• Balance Sheet (quarterly or annually): a snapshot of assets, liabilities and equity.

Shopify's own sales reports add useful colour on top: best-sellers, sales by channel, conversion and average order value. Use them to back winners, clear slow stock and steer your ad budget.

What are the key tax deadlines? {#deadlines}

Miss these and the penalties stack up fast.

Self Assessment (sole traders)

The tax year runs 6 April to 5 April. For each year:

• 31 January: file your online return and pay any balancing payment, plus your first payment on account
• 31 July: second payment on account
• 5 October: register for Self Assessment if it's your first year

So for 2025/26 (6 April 2025 to 5 April 2026), you file and pay by 31 January 2027.

Corporation Tax (limited companies)

• Pay within 9 months and 1 day of your company year end
• File the CT600 within 12 months of your year end

For a 31 March 2026 year end, that means paying by 1 January 2027 and filing by 31 March 2027.

VAT returns

Returns are usually quarterly, due one month and seven days after the period ends. So a quarter ending 31 March is due by 7 May.

Since 1 January 2023, late VAT returns use a points-based system. Each late return earns a penalty point; once you hit the threshold for your filing frequency, you get a £200 penalty, and another £200 for each further late return while you're at the threshold. Late payment penalties are separate and increase the longer the VAT stays unpaid, with interest charged on top.

How do I handle international sales? {#international}

Selling abroad opens up growth, and a bit more admin.

Multi-currency

Convert all non-sterling sales to GBP for UK tax using the transaction-date rate or HMRC's monthly rates, and record conversion fees and any currency gains or losses. Most cloud accounting tools handle multi-currency automatically.

EU sales

Selling goods to EU consumers may bring you into the Import One Stop Shop (IOSS) or One Stop Shop rules, depending on how and from where you ship. The detail is fiddly, so check HMRC's guidance or get advice before you assume.

Rest of world

Exports outside the UK are generally zero-rated for VAT, but you must keep evidence the goods actually left the country (shipping and customs documentation).

International structures get complicated quickly. If that's where you're heading, our tax advisory team can map it out before it becomes a problem.

Shopify accounting checklist {#checklist}

• Track every sale gross, and record fees as a separate expense
• Reconcile Shopify payouts to your bank at least monthly
• Keep a dedicated business bank account (essential for a limited company)
• Connect Shopify to MTD-compatible accounting software
• Calculate COGS properly and pick one inventory method
• Use consistent expense categories
• Review your P&L and cash flow every month
• Keep all records for six years
• Diary your VAT, Self Assessment and Corporation Tax deadlines
• Make regular tax provisions so the bill never surprises you

Talk to Zmartly about your Shopify accounts

Want your Shopify books, VAT and tax handled by accountants who actually understand ecommerce? Book a free call with a Zmartly accountant and we'll get your numbers working for you.

FAQs {#faqs}

Do I need a Shopify accountant?

Many UK Shopify sellers get by with accounting software integrated to their store, but it's worth bringing in an accountant once your turnover grows, you register for VAT, you sell internationally, or you run several channels. The benefit is correct VAT, accurate profit, every allowable expense claimed and full Making Tax Digital compliance.

Does Shopify do my accounting?

No. Shopify gives you sales, tax and payout reports, but it isn't an accounting system. You still need accounting software to reconcile payouts, track COGS, categorise expenses and prepare your VAT and tax returns, with Shopify's reports feeding into it.

Do I need to register for VAT as a Shopify seller?

You must register once your taxable turnover passes £90,000 in any rolling 12-month period. You can register voluntarily below that to reclaim VAT on your costs. If your business isn't UK-established but you sell goods located in the UK at the point of sale, there's no threshold and you must register from your first such sale.

How do I calculate COGS for my Shopify store?

COGS = Opening Inventory + Purchases − Closing Inventory. Include product cost, inbound shipping, import duties and packaging on sold items. Leave out Shopify fees, transaction fees, marketing and outbound shipping, which are operating expenses. Syncing Shopify inventory to your accounting software keeps it accurate.

What tax do I pay on Shopify sales in the UK?

For 2025/26, sole traders pay Income Tax (20%, 40% or 45% by band) and Class 4 National Insurance (6% then 2%) on net profit through Self Assessment, due 31 January. Limited companies pay Corporation Tax (19% small profits rate up to £50,000, 25% main rate over £250,000, with Marginal Relief between), and directors pay tax on salary and dividends. VAT-registered sellers charge 20% on standard-rated UK sales and file VAT returns.

What happens if I file my VAT return late?

Since 1 January 2023, late VAT returns use a points-based system. Each late return earns a point, and once you reach the threshold for your filing frequency you get a £200 penalty, plus a further £200 for each later late return while you remain at the threshold. Late payment penalties and interest are charged separately.

Can I claim Shopify fees as a business expense?

Yes. Shopify subscription fees, transaction fees, paid apps, marketing, fulfilment, accounting software and professional fees are all allowable, provided they're incurred wholly and exclusively for the business. Keep them separate from COGS, which covers the direct cost of the products you sell.