Nowadays we can sell to pretty much anyone with a WiFi connection. Setting up an ecommerce business is certainly an attractive prospect during holiday season when everyone is buying, but how do you go about it?
It’s not as simple as putting items on a website like Etsy and profiting from the transactions. There are a number of things to consider. Here, we guide you through what you’ll need to do before you start selling.
Know your legislation
Whether it’s in person or online, there are laws and regulations around selling. The Consumer Rights Act 2015 states that goods should be of a satisfactory quality, and that the buyer must have the right to a refund.
If you’re making your own products or selling those made by others, each one will require a quality check. This is especially important if they have been used previously. Whilst getting rid of your old possessions can earn you a tidy sum, you may receive complaints and refund requests if there’s any damage not previously communicated to the buyer.
Another piece of legislation to consider is the Consumer Contracts Regulation 2013, which requires you to provide information about your business. You’ll need to share a true description of the goods or services that you sell, the prices with VAT included (if you’re registered for this) and the refund policy, amongst other information.
There are also regulations specific to selling online. Under the Data Protection Act 2018, you must securely store any buyers’ personal data on electronic devices, as well as ensure this information is used fairly, lawfully and transparently.
The Electronic Commerce Regulations 2002 state the information that an ecommerce business is obliged to provide for electronic transactions. These include the tasks involved in ordering, along with the terms and conditions of purchasing.
Make your business official
You’ll need to choose an operating structure for your ecommerce business. The options available are:
- Sole trader
- Limited company
Having your own limited company will mean you need to appoint at least one director, sign the memorandum and articles of association, and register for corporation tax within the first three months. It also involves additional accounting responsibilities, so this may not be the best option if you’re running your business alongside a day job, or if you’ll be selling for only a limited period of time.
Registering as a sole trader (or, if there are multiple people involved in running the business, a partnership) may be preferable in this situation. Whilst it’s not mandatory to register your business immediately, it’s best to let HMRC know that you’re operating as soon as possible. You do this by registering for the Self Assessment.
Setting up this way will mean you need to name your business, though you can trade under your own. There are more specific requirements around picking a business name for a limited company.
Work out your costs
You’ll need to consider the costs involved in running your ecommerce business. There may be unexpected charges that could affect its operation, so make sure you work out your expenditures before you begin selling.
If you’re running your business alongside your day job, then there will be costs involved in buying stock (or the items for making it), as well as internet charges and any technological equipment if necessary. You might also have vehicle costs if delivering goods is part of your operation.
Marketing, such as a website if you sell your goods via this medium, as well as staff and uniform costs, may need to be considered too if you plan to grow.
These costs apply to both businesses that sell online and in person. However, there is one fee that only ecommerce businesses might incur. This is the charge paid if you sell on online marketplace websites, like eBay. They will likely take a percentage of your sales as commission.
Calculate the tax owed
Depending on your total income within the specified tax year, you may have to pay tax on it. If gross sales are less than £1,000, you can take advantage of the Trading Allowance and you will not be required to pay tax on this income.
Any that surpass this figure will owe tax on a sliding scale. 20% will go to the taxman for income over £11,850 but below £46,350, and 40% is deducted for earnings above £46,350 but less than £150,001. Anything over this is in the additional rate tax band, causing 45% to be owed.
You might be able to reduce your tax liability by offsetting your expenses. There are a variety of allowable expenses you can claim, such as the cost of office premises. It’s likely you will initially work from home though, and you can claim relief on your rent or mortgage interest, as well as the appropriate proportion of homeworking costs like utilities.
Simplify your ecommerce business taxes
Commerce has been brought into the digital world, and so has tax. The Self Assessment can now be submitted online securely, even on a smartphone, with all information stored digitally.
Using tax software, like GoSimpleTax, makes it much easier to get on top of your taxes. You simply input all your costs and expenses, and it works out the amount owed for you in an instant. It even offers tips for reducing your liability.
Test out the features of our Self Assessment software for yourself by taking advantage of our 14-day free trial today.