Navigating eCommerce and sales tax is one of the biggest challenges for online businesses today. Whether you are selling physical products or digital services, you must understand how tax applies to your eCommerce store to stay compliant with the current tax regulations.
As online shopping has become increasingly popular, more businesses have made the shift to selling online, and therefore, tax rules are changing.
In today’s blog, we will break down what tax needs to be paid in the UK, how you can stay compliant with sales tax regulations for your eCommerce business and how the team at DH Business Support can help you.
What is eCommerce Sales Tax?
eCommerce sales tax is the tax that you charge your online customers when they buy your product or service. It is applied at a standard rate of 20% VAT in the UK. Similar to the tax that you charge customers in a physical store.
If your annual turnover for your business exceeds £90,000, then you must charge your customers VAT on the products that you sell.
If your annual turnover is less than the £90,000 threshold, then you are not legally required to register for VAT in the UK. Therefore, you won’t have to charge your customers VAT, and you can’t claim VAT back on your business expenses.
However, you can choose to voluntarily register for VAT, some small businesses do this to appear more established online and to reclaim VAT on business expenses.
The Types of Tax You Must Follow in The UK
In the UK, there are multiple different types of tax that you must be aware of when you run an online eCommerce business. Staying compliant with how much tax you must pay is essential.
If you are unsure, don’t worry, we are here to help! Let’s take a look at the different types of tax in the UK:
Corporate Tax
Corporate tax is a type of tax which is based on the income or capital of a corporation. You must pay corporate tax on business profits if you are:
- A limited company
- An overseas company
- A community group or sports club
You are responsible for working out how much corporation tax you owe and reporting and paying it to the HMRC.
You must pay corporation tax on the following:
- Doing business
- Business-related investments
- The profit you make
VAT
VAT, also known as value-added tax, is the tax added to most products and services sold by registered VAT businesses.
Businesses that make an annual turnover of £90,000 must apply VAT to their products; however, you can also volunteer if your business makes less than the threshold.
If your business is registered for VAT, you must:
- Include VAT in the price of all goods and services that you sell.
- Keep a record of how much VAT you pay when buying things for your business.
- Keep track of the VAT on any goods that you import into the UK.
- Report the amount of VAT that you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return.
- Pay the VAT that you owe to HMRC.
Income Tax
You pay income tax to the government based on your annual income. The payable tax rates from April 2025 are:
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
National Insurance
National insurance is the tax that you are required to pay on earnings in the UK. This helps to fund state benefits such as:
- State Pension
- NHS
- Maternity allowance
- Unemployment support
The amount of national insurance that you must pay is calculated above a certain threshold, and different rates apply to different income brackets.
PAYE
PAYE, also known as pay as you earn, deducts income tax from an employee’s pay. You must register your employee for PAYE if:
- They are paid over £96 a week
- They get expenses and company benefits
- They have a pension
- They have previously had another job
- They have received a job seeker’s allowance
Dividends Tax
Dividend tax is the tax that you pay on dividends received from shares that you have in a company. Dividends are taxed after salary and personal allowance. Everyone gets a tax-free dividend allowance of £500, and anything over that is taxed at a specific percentage.
How to Stay Compliant With VAT and The Challenges
Understanding the complex tax guidelines that you have to follow when you run a business can sometimes feel like a job in itself, and you can easily begin to feel overwhelmed by it all, especially if you don’t fully understand it.
Investing in VAT automation software can significantly reduce how time consuming VAT compliance can be. These software solutions integrate with eCommerce platforms and automatically calculate VAT based on transaction data, ensuring accuracy and efficiency when calculating tax.
- Find out the top 5 eCommerce accounting software here.
If you don’t comply with VAT guidelines correctly, then you are at risk of receiving a penalty. This is why it is important to reach out to a professional if you are unsure.
Let Us Help You Stay Compliant With Your eCommerce Businesses.
Managing your finances alongside an eCommerce business can be a struggle, especially when there are many guidelines you must follow to stay compliant with HMRC. We say leave the numbers to the experts – check out our helpful blog on the best practices for eCommerce accounting.
If you’d like more information, we’re here to provide expert tax advice. Our team of eCommerce accountants are here to support and guide you when paying sales tax for your eCommerce business. With years of experience, knowledge and expertise, you are in the right hands.
Let us help you and take the finance side of your business off your already full hands! Get in touch with the team today, we are more than happy to help.