Guide to Selling on Amazon as a Sole Trader or Limited Company

Ryan Patrick

• 11 min read
Guide to Selling on Amazon as a Sole Trader or Limited Company

Selling on Amazon is open to anyone: a sole trader or a limited company, but there are some products you can’t sell on the platform.

Most of the UK population shops online, making Amazon a leading platform to sell goods in the country. As a sole trader or limited company, the online platform exposes you to millions of potential shoppers.

Whether you’re looking to launch a business in the UK on Amazon or wondering if you can change your Amazon seller account to a limited company, this is your guide.

Join us as we take you through this guide to selling on Amazon as a sole trader or limited company. We will take you through the basics of starting a business on Amazon from the UK, registering your online business, and choosing the right products for your customers.

The Basics of Amazon Business

Amazon is a simple online platform that allows anyone to set up a business.

The simplicity of navigating the platform appeals to sellers and shoppers persuading millions of people to join the online business community. As a result, most people run an Amazon business as a side hustle, adding to their main income stream. All you need to operate on Amazon is to register an account and start selling.

Amazon offers a basic selling plan, also known as an individual plan, that anyone can use to reach potential customers. Under this plan, you can sell up to 35 monthly products, earning you 1000 pounds.

There’s also a Professional Selling Plan where you can sell unlimited products.

Each package attracts different costs, and you should consider your plans before setting up a selling account on Amazon. WHY? Migrating from a Sole trader to a limited company can be challenging, but swapping between a Basic Selling Plan and a Professional selling Plan is simple.

The Advantages of Having a Business Seller Account

Amazon sellers enjoy many benefits, making it a good choice for those who want to start an online business venture.

  1. Registering an Amazon seller account gives you access to a ready market with millions of people using the platform daily.
  2. Amazon has a world-class marketing and distribution infrastructure, exposing your business to a broad audience fast and efficiently.
  3. Amazon accounts come with Amazon Seller Central, a resourceful feature that consists of several helpful tools and resources to run your business. Some features include customer support, management of orders, and reporting features.

Therefore, an Amazon seller account is a great place to begin if you are seriously considering starting an online business. If you would like to know the Amazon selling fee in the UK, check this article on Amazon Seller Fee here.  

Selling on Amazon as a Sole Trader

The business packages on Amazon allow individual sellers to do business.

All you have to do is register on the platform with a preferred Amazon business plan and keep a record of all your transactions. You must verify your identity through a prompt in the setup process.

Whenever you meet the sale threshold as an individual, Amazon will take their fees at source and release the remaining funds to you. Keep all transaction records and associated costs to ensure you remit the correct tax on your income.

Benefit of a Sole Trader on Amazon

  1. Setting up a sole trader account on Amazon is easy. Find the step-by-step guide on the official government website - Gov.UK.
  2. A sole trader account is highly private. The personal details you use when opening a sole trader are private, not in the public domain like in a limited company.
  3. Annual accounts are submitted through self-assessment, a much more straightforward way to report company accounts. If you need more clarification about the process, hire an accountant to help you.

The Downside of a Sole Trader on Amazon

  1. As a sole trader, you’re responsible for any debt or liabilities the company incurs. The liabilities include any court cases you might be sued for when things go wrong. Personal liability can be stressful, primarily if the outcome affects your finances or credit rating.
  2. Although setting up a sole trader is simple, changing to a limited company on Amazon is complicated. Once you apply for a change, your sole trader account will be suspended for several weeks before the transition.
  3. Since August 2021, a sole trader or personal income tax is slightly higher than a corporation tax. You begin to remit taxes on earnings above £12,570, the current tax-free threshold.

Selling on Amazon as a Limited Company

A limited company must verify its identity when setting up a seller’s account before selling on Amazon as a sole trader.

Once you launch the platform, follow the setup instructions meticulously to ensure you provide valid information to set up your Amazon business account.

Benefits of Setting up a Limited Company on Amazon

  1. A limited company is a limited liability, meaning the business assets or finances are separate from the owners if any financial difficulties arise.
  2. Pay corporation tax is what a limited company pays, and it’s lower than personal income tax, besides any other salary you get from the company. Limited companies have different tax deductibles. The amount of corporate tax you remit can be lower.
  3. Unlike a sole trader, your trading name can’t be duplicated after registration at Companies House.

Disadvantages of a Limited Company on Amazon

  1. Running a limited company is complex. Annual company records, confirmation statements and data protection are some requirements that must be reported.
  2. Maintaining limited company accounts is much more complex, meaning you might need to outsource an Amazon accountant.

Which is Better? Selling on Amazon as a Sole Trader or Limited Company

When starting a business on Amazon, the primary factor to consider is how much you intend to sell.

Settling for the WRONG selling account or business structure will significantly IMPACT your Income Tax and National Insurance contributions (NIC). Thus, getting it right from the beginning is crucial.

Registering a sole Trader account is ideal if you plan to sell a few goods on Amazon. As a sole trader, you gain tax advantages when you set up a company.

However, people who are sure of making regular sales on Amazon regularly should opt to set up a limited company as it is more tax-efficient. Besides, you also benefit from limited liability, meaning you aren’t liable if your business runs into losses.

Sole Trader Vs Limited Company

A sole trader and a limited company are different business structures operating under varying regulations, even on Amazon.

It’s crucial for anyone who intends to go into business to understand both business ventures, especially UK associates who want to join Amazon sellers.

As a sole trader, you’re self-employed and run your business as an individual.

When you set up a limited company, the business and you are two different entities. The industry is considered a legal entity, meaning it’s independent in all its operations.

A sole trader and limited company have benefits and downsides you should consider before registering your Amazon account.

Potential Taxes on Amazon

Limited companies pay corporate tax, which is 19-25%, whereas sole traders pay 20-45% Income Tax on profits. Although there are rules and regulations concerning Value Added Tax (VAT), they vary for sole traders and limited companies. Either way, whatever business you choose will have a potential tax liability, but it should not determine your business structure.

Trading on Amazon as a limited company helps you minimise personal tax liability and National Insurance contributions (NIC). It’s only possible because you can pay salary and dividend payments together.

If your salary is below the NIC primary threshold (£12,570 for 2023/24), you’re NOT expected to remit NIC or Income Tax to pay.

Meanwhile, your first £1,000 of dividends is exempt from tax, and any other dividend income beyond this amount attracts between 8.75% and 39.35% tax rates. These taxes are much lower than Income Tax rates, and neither you nor the company will have to pay NIC on dividend income.

Alternatively, if you trade as an individual on Amazon, your profits are treated as personal income. As a result, all profits are subject to different income Taxes and NICs.

Generally, sole traders pay more tax than a limited company when the annual income from all sources exceeds £30,000. If your income exceeds £50,000, you pay a higher tax rate, which translates to 40% tax on any personal income.

Changing a Sole Trader to a Limited Company on Amazon

If you’re already set up as an Amazon sole trader, you can change from a sole trader to a limited company, but it’s tricky.

WHY? Because moving your Amazon Seller Account to a different entity requires re-verification, which can result in significant delays.

Mostly, sole traders who wish to transfer from an existing seller account to a limited company can go WITHOUT selling on Amazon for some time. The delay may be several weeks or months as they wait to verify the new accounts. During this verification period, seller accounts are suspended, leading to income loss.

For this reason, it’s imperative to make serious considerations before opening an Amazon Seller Account if you hope to trade as a limited company someday.

Simple Steps to Setting Up an Amazon Account

Assuming you’re ready to trade on Amazon, the initial step is to choose what to sell on the platform. Plus, before you select a product, you should be driven by the product demand, and if many sellers are offering the same, find a way to stand out from the competition.

Another significant factor is the product cost.

The price must be competitive as you price your items, yet it should factor in Amazon fees and your profit.

Setting your prices too low means you won’t make any profits, but why are you in business? No need, right? How about you go too high, and potential customers find a cheaper seller? It isn’t straightforward, and you must take time to make this decision.

Besides product choice and pricing, you also need a reliable source to supply the product. It’s not a good business practice for customers to order products that aren’t available. Running into stock shortages or quality control problems can destabilise your business.

Therefore, you should research your suppliers to ensure they’re reliable in supplying the goods and compare prices to get the best deal. Research your suppliers to compare prices and review reviews to check their reliability.

Here are six simple steps to set up an Amazon Account.

1. Choose a Product (S)

Amazon allows sellers to sell anything from electronics, clothing, and books to furniture. The demand for a product should guide you, and you must be sure before placing an order. You can filter through Amazon’s Product Category to determine what you can sell.

Although you can sell almost anything on Amazon, there’s a list of prohibited items you can’t trade on the platform. Before you start trading, take time to research all banned goods. Some of the prohibited goods include:

  • Medicines
  • Fireworks
  • Weapons
  • Tobacco products
  • Any product with prohibited ingredients
  • Anything that can’t be shipped in the UK

2. Business Plan

Research the number of sellers offering the same items because the platform is highly competitive. Here are the areas to consider in your business plan:

  • Identify a profitable niche to ensure your business earns you income.
  • Carry out market research.
  • Identify funding to meet your goals: crowdfunding, family and friends, business bank loans.
  • Find reliable product suppliers.
  • Put your business plan together. It should include:
  • Finances
  • Competitor research
  • Items to sell
  • Operational details
  • Marketing strategies
  • Operational details

Your business plan is like a live feed, and you should update it whenever the business changes.

3. Set Up the Amazon Business Account

Register for an Amazon seller account if you don’t have one, and do so in one of the following ways.

  • An individual Seller account costs nothing monthly, but Amazon will charge a seller fee for each item you sell.
  • A Pro Seller account charges a monthly subscription fee and has more features.

Let your budget guide you into choosing the correct account.

Amazon has introduced “Fulfilment by Amazon” (FBA) to help cope with sellers’ ever-rising demands.

So, what role does FBA play? The service lets Amazon keep an inventory of your products to fulfil customer orders and offer customer support.

With this service, sellers leverage Amazon’s solid distribution network and customer base to realise their business dreams. Thus, retailers find the platform to be ideal for business.

Navigating the Amazon FBA service is simple: create an Amazon seller account, then add FBA, ensuring you follow business compliance guidelines on the website.

How to Create an Amazon Seller Account

It’s easy to set up your Amazon seller account by following these steps:

  1. Launch the official Amazon services website
  2. Locate the “Pricing” tab and click “Compare Selling Plans.”
  3. Select a selling plan
  4. Type your email address then click “Create a New Account”
  5. Provide information on “Business Type” and “Business Location.”
  6. Type in your details
  7. Provide billing information
  8. Verify identity and address

Once you complete the process, your Amazon seller account is ready to begin operating.

4. Create a Product List

A product list is where the items you’re selling will appear.

Make an endearing list using high-resolution images, and ensure they are Prime eligible so Prime clients can enjoy free shipping.

If you’re only selling a few products, you can list them manually. However, if the list is long, prepare and upload a spreadsheet detailing all products. After the listing, your products will be available for sale. Here’s what your product list should contain.

A good product listing to help convince customers to buy. Provide all relevant information and make it engaging by including the following:

  • A clear and precise product description
  • Use of high-quality images to show off the product
  • Detail all crucial features of the product
  • Whatever you write should be well formatted and easy to read: use bullet points and numbers

5. Register a Business Account

When starting an Amazon business in the UK, you must pay taxes and follow other regulations, such as registering the company with Companies House.

Any business making over £1,000 annually on Amazon must register as a sole trader and pay taxes. Different countries have varying rules and regulations on taxes and income. Hence, you should consult to ensure you’re compliant.

If your Amazon business is in the UK, you must register with HMRC, and if you plan to expand the business, consider forming a limited company. The business will be separate from you, and you’ll remain safe anytime the business fails. However, a sole trader suits you if the business is a side hustle.

6. Start Selling on Amazon

Your Amazon seller account is ready, the product listing is live, and the business is registered. It feels like you’re done, right? NO. Now, the real work begins.

Although Amazon gives you access to millions of potential customers, competition is stiff, and you must stand out from other sellers. How do you achieve that? You’ll stand by doing the following:

  • Market your business
  • Brand the business
  • Source reviews to help convince buyers

Form Your Company with Incorpuk

Today Incorpuk offers a range of fast and efficient online company formation services, allowing you to register a business structure of your choice quickly. To get started, kindly contact us here.

Frequently Asked Questions

Is joining Amazon as a sole trader or a limited company better?

A sole trader pays income tax on all business profits on Amazon, whereas a limited company is more flexible because of corporate tax. As a sole trader, the more income you earn, the higher the income tax, while in a limited company, you can withdraw an average salary, and it’s taxed as such. The dividends you earn from a limited company are taxed at lower rates.

When should I change from sole trader to a limited company on Amazon?

You change from a sole trader to a limited company so that you can keep more of your profits. Change your business structure when your profit earnings begin to pick up. Although there’s no limit to the amount of profit, if you save more on taxes than the costs of running a limited company, it’s safe to change.

What reasons can I have to change from a sole trader to a limited company?

Change from a sole trader to a limited company structure as it is tax-efficient and a flexible business venture. You get to keep more of your profits since you pay less taxes as a limited company.

Conclusion

If you’re new to business, talk to business specialists before plunging. Better still, this guide to selling on Amazon as a sole trader or limited company will help you decide what’s ideal.

Amazon is a vibrant platform with millions of customers buying from the platform. UK shoppers love the platform, and if you’re joining Amazon as a seller with a UK company, your client base is ready.

All you have to do is follow the guidelines on the platform to become a seller and enjoy the profits.

Whether you become an Amazon sole trader or a limited company, it’s upon you. However, you should remember that a sole trader will work for you if the business is a sidekick. As for people who intend to diversify their business, you need to register a limited company. Enjoy your Amazon seller journey once you’re equipped with the correct information. If you would like to get more information on how to set up a limited company or a sole trader in the UK, kindly contact Incorpuk here.