If you sell on Amazon in the UK, you have probably wrestled with one fundamental choice: let Amazon store and ship your products (Fulfilled by Amazon, or FBA), or handle storage and despatch yourself (Fulfilled by Merchant, FBM). Most sellers pick a model based on convenience or margin — but the tax and accounting implications of each are surprisingly different. Get them wrong and you could face an unexpected VAT bill, misstated profits, or a headache at Self Assessment time. This guide walks through the key differences so you can make informed decisions and keep HMRC firmly on side.
How FBA and FBM Work — and Why It Matters for Tax
Under FBA, you send your stock to one or more of Amazon's fulfilment centres across the UK (and potentially the EU). Amazon stores it, picks and packs orders, and handles returns. Under FBM, your stock stays in your own premises or a third-party warehouse, and you despatch every order yourself.
That difference in physical control creates a cascade of accounting consequences. With FBA, Amazon charges you a suite of fees — fulfilment fees, storage fees, removal fees, and sometimes long-term storage fees — which appear as deductions on your monthly disbursement statement. With FBM, your costs look more like a traditional retailer: postage, packaging materials, and your own warehouse overheads. Each cost structure must be recorded correctly to arrive at an accurate profit figure for both Corporation Tax (if you trade through a limited company) or Income Tax under Self Assessment (if you are a sole trader or partnership).
VAT Obligations: Where FBA Gets Complicated
VAT is arguably the biggest compliance minefield for FBA sellers. The moment Amazon moves your stock into a fulfilment centre in another country — even within its European network — you can trigger a VAT registration obligation in that country. Before Brexit this affected UK sellers using Pan-European FBA extensively; today it most commonly arises when sellers opt into Amazon's European Fulfilment Network and stock is held in Germany, France, Poland, or elsewhere.
For UK-only FBA, the position is more straightforward, but you still need to track your turnover carefully. The UK VAT registration threshold currently stands at £90,000 (as of 2024–25). Amazon's disbursement reports show net receipts after fees, which can mislead sellers into thinking their taxable turnover is lower than it actually is. Your VAT-liable turnover is the gross selling price paid by the customer — not the amount Amazon pays you after deducting its fees. Underreporting turnover on this basis is a common and costly mistake.
FBM sellers face the same VAT threshold rules, but the accounting is generally cleaner because every sale flows through a single payment processor or marketplace disbursement, and there are no cross-border stock movements to worry about unless you are shipping internationally yourself.
For sellers who are VAT-registered, Making Tax Digital (MTD) for VAT requires digital record-keeping and direct submission to HMRC. A platform like BizHub365 handles MTD VAT submissions directly via HMRC's API, which removes the need for bridging software and reduces the risk of manual errors in your returns.
Allowable Expenses and How They Differ
Both fulfilment models generate legitimate business expenses you can deduct from your taxable profit, but the categories differ considerably.
FBA sellers should be capturing:
- Amazon fulfilment and referral fees (shown on your Seller Central account statements)
- FBA storage fees, including long-term storage surcharges
- Inbound shipping costs to Amazon's fulfilment centres
- Prep and labelling costs if you use a third-party prep centre
- Reimbursement discrepancies where Amazon loses or damages stock
FBM sellers typically claim:
- Postage and courier costs (Royal Mail, DPD, Evri, etc.)
- Packaging materials — boxes, bubble wrap, tape, labels
- Warehouse rent or a proportion of home-office costs if despatching from home
- Staff or subcontractor costs for packing and despatch
- Amazon referral fees (still applicable under FBM)
One area that catches FBM sellers out is use of home claims. If you store stock in your garage or spare room, HMRC allows a reasonable apportionment of household costs — but you need to document the calculation clearly. Overclaiming here can attract scrutiny during a compliance check.
Stock Valuation and Cost of Goods Sold
Accurate stock valuation underpins correct profit reporting under both models, but FBA introduces an additional layer of complexity. Because your inventory is physically held by Amazon, you cannot conduct a straightforward year-end stocktake. Instead, you must rely on Amazon's inventory reports — and reconcile them against your own purchase records.
HMRC expects stock to be valued at the lower of cost or net realisable value. For FBA sellers, "cost" should include not just the purchase price of the goods but also inbound shipping and any prep costs incurred before the stock arrived at the fulfilment centre. These are capitalised into the stock value, not expensed immediately — a distinction that affects both your balance sheet and your taxable profit for the year.
FBM sellers generally find stock valuation more straightforward, since the goods remain in their own hands and a physical count is practical. That said, sellers who use multiple storage locations — a home garage, a rented unit, and a third-party logistics provider — need a reliable system to track stock across all sites.
Whichever model you use, cloud accounting software that integrates with Amazon or allows easy import of sales data will save significant time at year end. BizHub365's bank statement import and bookkeeping tools can help you reconcile Amazon disbursements against your records efficiently, keeping your accounts tidy throughout the year rather than scrambling in January.
Self Assessment and Corporation Tax: Reporting Your Amazon Income
Whether you are a sole trader filing a Self Assessment return or a limited company preparing statutory accounts, your Amazon income must be reported on an accruals basis (unless your turnover is below the cash basis threshold of £150,000 for sole traders). That means recognising revenue when the sale occurs, not when Amazon disburses the funds to your bank account — which can be a fortnight or more later.
For FBA sellers, Amazon's monthly settlement reports are the starting point, but they require careful adjustment. Disbursements can include reimbursements, promotional rebates, and adjustments from previous periods. Treating every deposit as straightforward income leads to miscategorised transactions and distorted profit figures.
Sole traders should also be mindful that Amazon income is combined with any other self-employment income when calculating Class 4 National Insurance contributions — currently charged at 6% on profits between £12,570 and £50,270, and 2% above that. Overlooking NI when estimating your tax liability is a frequent surprise for new Amazon sellers.
Conclusion: Choose Your Model Eyes Open
FBA offers convenience and reach, but it comes with greater accounting complexity — cross-border VAT exposure, reliance on Amazon's inventory reports, and a fee structure that must be disentangled from gross revenue. FBM is more hands-on operationally, but the financial picture is often cleaner and easier to manage. Neither model is inherently better from a tax perspective; what matters is that you understand the obligations each one creates and build your record-keeping around them from day one.
If you are unsure where you stand — particularly on VAT registration thresholds or allowable expenses — speak to a qualified accountant who understands e-commerce. And if you are looking for accounting software built specifically for UK compliance, including MTD VAT and Self Assessment, it is worth exploring what BizHub365 has to offer at bizhub365.co.uk.