Ecommerce Expenses Guide UK — Allowable Tax Deductions 2026/27
Use this complete ecommerce expenses guide UK to understand what online sellers can legally claim in the 2026/27 tax year. It covers Amazon FBA, Shopify, eBay, Etsy, TikTok Shop and multi-channel sellers, including COGS, platform fees, shipping, PPC, software, home office costs, mileage, staff costs, VAT records and the expenses HMRC will not accept.
Ecommerce Expenses UK 2026/27: What This Guide Covers
Running an online store creates dozens of small and large costs every month. Some are obvious, such as product purchases, Amazon FBA fees, Shopify subscriptions and courier charges. Others are easy to miss, including currency conversion fees, sample costs, photography, packaging inserts, product inspection, returns handling, home office costs, mileage to warehouses, and professional bookkeeping support. A strong ecommerce expenses UK system makes sure those costs are recorded correctly so your taxable profit is not overstated.
For ecommerce sellers, expenses are not just a tax topic. They are also a margin topic. If your accounts do not capture Amazon referral fees separately from FBA fulfilment fees, or if your COGS does not include import duty and inbound freight, your product profitability reports will be wrong. You may think a SKU is profitable when it is really losing money after platform fees, ad spend, storage charges, refunds and VAT are considered. That is why this page is written for practical online sellers, not just for generic small businesses.
This updated 2026 guide explains what is normally allowable, what needs apportionment, what belongs in cost of goods sold, what should be capitalised, and what HMRC commonly challenges. It also includes internal links to related guides such as our Amazon FBA fee calculator UK, Amazon seller accounting guide, Amazon FBA VAT guide UK and capital gains tax guide for selling an ecommerce business.
The Golden Rule — HMRC's "Wholly and Exclusively" Test
The starting point for every ecommerce tax deduction is simple: a business cost is normally allowable if it is incurred wholly and exclusively for the purposes of your trade. In plain English, that means the expense must be genuinely connected to running your ecommerce business and not simply a personal cost dressed up as a business cost. If you buy stock to resell, pay Amazon fees, subscribe to inventory software, pay a product photographer or send parcels through Royal Mail, those costs clearly relate to your trade.
Mixed-use expenses need more care. If you use the same mobile phone, broadband line, laptop or vehicle for both business and personal purposes, only the business proportion should be claimed. The method must be reasonable and supported by evidence. For example, if 70% of your broadband use is for business because you work from home full-time and run your store online, claiming 70% may be reasonable. If you only answer a few customer emails at night and mainly use the broadband personally, a much lower proportion is more appropriate.
Revenue vs Capital Expenses
Day-to-day running costs are usually revenue expenses and reduce taxable profit immediately. Long-lasting assets such as laptops, cameras, desks, warehouse racking and some equipment purchases are normally capital items. These are usually relieved through capital allowances, often using the Annual Investment Allowance where eligible. This difference matters because the accounts should show the right type of deduction in the right place.
2026/27 Update for Online Sellers
For the 2026/27 tax year, this guide reflects key UK thresholds and rates relevant to ecommerce sellers: the £1,000 trading allowance, the £1 million Annual Investment Allowance, the £90,000 VAT registration threshold, the updated 55p car and van mileage rate for the first 10,000 business miles from 6 April 2026, and Corporation Tax rates of 19% for small profits and 25% for main-rate companies.
Jump to Expense Category
Ecommerce Expense Tax Saving Calculator UK
Use this simple calculator to estimate how much an allowable ecommerce expense could save in tax. It is designed for quick planning only. Your actual saving depends on your business structure, profit level, VAT position, National Insurance, capital allowance treatment and whether the expense is wholly business-related. For a precise calculation, speak to an ecommerce accountant before filing your Self Assessment or Corporation Tax return.
Allowable Expense Tax Saving Estimator 2026/27
This is an estimate only. It ignores VAT recovery, National Insurance, marginal relief, cash basis timing and capital allowance restrictions.
Allowable Expense Categories for UK Ecommerce Sellers
The following expense categories cover the most common deductions for online sellers. Your exact treatment depends on whether you trade as a sole trader, partnership or limited company; whether you use cash basis or traditional accounting; and whether you are VAT registered. The important point is to record each cost in the right category so your accounts, VAT returns and product profit reports remain reliable.
1. Cost of Goods Sold (COGS) & Stock Costs
Highest ValueCost of Goods Sold is usually the largest deductible cost for an ecommerce seller, but it is also one of the most commonly recorded incorrectly. COGS is not simply the cash paid to suppliers during the year. It is the cost of the products you actually sold during the accounting period. Unsold stock remains an inventory asset until it is sold, damaged, expired, lost or written off. This matching principle is essential if you want accurate profit by SKU, brand or channel.
For Amazon FBA and Shopify sellers importing products, COGS should usually include the purchase price, supplier charges, inbound freight, duty, customs clearance, product inspection, manufacturing costs and product-specific packaging. If you exclude inbound freight and duty, your margins look artificially high. If you expense all purchases immediately while stock is still unsold, your profit swings wildly and your tax return can become inaccurate.
Ecommerce Accounting Tip
Use a consistent inventory method such as FIFO or weighted average cost. Connect your sales channels to accounting software where possible, but still reconcile inventory reports to your balance sheet each month. Clean COGS is the difference between guessing product profit and knowing it.
2. Platform, Marketplace & Payment Fees
Fully DeductiblePlatform and marketplace fees are usually fully deductible because they are direct costs of selling online. This includes Amazon referral fees, FBA fulfilment fees, storage fees, Shopify subscriptions, eBay final value fees, Etsy fees, TikTok Shop fees, payment processor fees and currency conversion charges. The best accounting treatment is to record gross sales and then separately record the platform fees. Do not simply record the net bank deposit as sales, because that hides both revenue and expenses.
Amazon sellers should pay particular attention to settlement reports. A single Amazon payout can include sales, refunds, referral fees, FBA fees, storage fees, advertising, reimbursements, promo rebates, reserve balances and VAT adjustments. Posting only the payout amount to income is one of the biggest ecommerce bookkeeping mistakes. If you need help, see our A2X accounting integration guide or our Amazon seller accounting services.
3. Shipping, Fulfilment, Returns & Packaging
Fully DeductibleShipping and fulfilment costs are deductible where they relate to delivering products to customers or moving stock through your supply chain. This includes Royal Mail, DPD, DHL, UPS, Evri, 3PL invoices, postage labels, return labels, pick-and-pack charges, warehouse receiving fees, pallet storage, packaging and consumables. For sellers with their own warehouse or storage unit, rent, business rates, insurance and utilities are also business expenses.
Keep shipping costs separate from COGS where possible. Product-specific packaging that forms part of the product can sit inside COGS, while outbound shipping and fulfilment are usually selling and distribution costs. This separation helps you compare channels. For example, a product may have the same COGS on Amazon and Shopify, but very different fulfilment and payment costs.
4. Advertising, PPC, Influencers & Marketing Costs
Growth CostAdvertising and marketing expenses are normally allowable where they are designed to promote your products or brand. Ecommerce sellers commonly claim Amazon PPC, Google Shopping, Meta Ads, TikTok Ads, Pinterest Ads, influencer payments, affiliate commissions, email marketing tools, SEO services, product photography, video production, graphic design, PR support, landing page software and giveaway costs. These costs should be tracked by channel so you can measure return on ad spend as well as tax deductions.
Be careful with gifts, samples and entertainment. Product samples sent to influencers or prospective wholesale buyers may be deductible if they are genuinely promotional and properly recorded. But client entertainment, hospitality, meals with suppliers and event tickets are generally not deductible for tax even if the conversation is business-related. This is a common area where sellers overclaim.
Entertainment Is Different
Taking a supplier, influencer or buyer out for meals or hospitality is usually business entertainment and is not deductible for tax. Staff annual events can be exempt if they meet HMRC conditions and the cost is £150 or less per head, but client entertainment is not treated the same way.
5. Software, Subscriptions, Website & Automation Tools
Often Many Small CostsEcommerce businesses often run on a stack of monthly tools. Accounting software, inventory systems, repricers, research tools, review monitoring, customer support platforms, email software, website hosting, domain names, plugins, analytics, design tools and automation apps are normally deductible where used for business. Small monthly subscriptions are easy to miss because they appear across cards, PayPal, Apple, Google and marketplace invoices.
A good bookkeeping system should capture each subscription from bank feeds and receipts. Review the software list every quarter. Cancel unused tools, combine duplicate apps and separate direct selling tools from admin tools. This improves profit as well as tax accuracy.
6. Home Office, Premises, Utilities & Equipment
Apportion CarefullyMany online sellers start from a spare room, garage or home office. If you work from home, you may be able to claim a fair proportion of costs such as electricity, heating, internet, phone, rent, mortgage interest and council tax, depending on your structure and method. Sole traders can use simplified expenses or actual costs. Limited companies normally use different methods, such as reimbursing business phone costs or paying a reasonable home working allowance or rent under a properly documented arrangement.
Simplified Home Office Rates
Flat Rate Working From Home Allowance
The flat rate is easy, but active ecommerce sellers often get a better result using the actual costs method. Under actual costs, you work out a reasonable business proportion based on rooms used, time used and the type of cost. For example, electricity for the room used as an office may be apportioned differently from broadband if broadband is used throughout the house.
Example: Actual Cost Method
7. Staff Costs, Directors, Contractors & Outsourcing
Fully DeductibleStaff and outsourcing costs are normally allowable where the work is genuinely for the business. This includes wages, employer National Insurance, employer pension contributions, freelancers, virtual assistants, warehouse labour, customer support, designers, product researchers, bookkeepers, developers and agencies. The key is documentation: invoices for contractors, payroll records for employees, and evidence that the cost is commercial and business-related.
Ecommerce founders sometimes pay family members for support. That can be allowable if the person genuinely does work, the pay is reasonable for the work, and there are proper records. Paying a spouse or child an inflated amount without evidence of actual work can be challenged. Limited company directors must also consider PAYE, dividends, benefits in kind and director loan accounts.
8. Accounting, Legal, Insurance & Professional Fees
Protects the BusinessProfessional fees are deductible when they relate to the trade. Ecommerce sellers can normally claim bookkeeping, accounting, tax return preparation, VAT advice, payroll, legal contract work, trademark applications, product liability insurance, public liability insurance, cyber insurance, stock insurance and business consulting. Costs that are personal, capital in nature or related to buying/selling the business may need separate treatment, so do not group all legal fees into one generic account.
Good professional support can pay for itself. Clean accounts help you avoid missed deductions, VAT errors, wrong COGS, Amazon settlement mistakes and poor cash-flow reporting. If you are preparing to sell the business, buyers will expect accurate financials, clean add-backs and proper proof of revenue and expenses.
9. Travel, Mileage, Trade Shows & Vehicle Costs
2026 Mileage UpdatedBusiness travel is deductible where the journey is for business rather than ordinary commuting. Ecommerce examples include trips to the post office, warehouse, storage unit, supplier meetings, trade shows, product shoots, fulfilment centres, accountants, networking events and business training. Keep a mileage log with the date, destination, purpose and miles. HMRC can challenge mileage claims if there is no evidence.
Approved Mileage Rates 2026/27
10. Bank Charges, Finance Costs, FX & Bad Debts
Often HiddenFinance costs can be small individually but meaningful over a year. Ecommerce sellers often pay business account fees, card fees, international transfer charges, Payoneer fees, Wise fees, WorldFirst fees, loan interest, overdraft interest, merchant cash advance fees and realised foreign exchange losses. Interest can be deductible if the borrowing is used for business purposes, but capital repayments are not an expense. Only the interest and finance charge elements reduce profit.
11. Training, Courses, Books & Professional Development
Business RelatedTraining costs can be allowable where they maintain or improve skills used in the existing business. For an ecommerce seller, this might include training on Amazon advertising, Shopify conversion rate optimisation, inventory forecasting, bookkeeping software, VAT compliance, product photography, SEO, email marketing or marketplace operations. A course that teaches you an entirely new trade or prepares you for a different business may not be allowable in the same way.
Books, memberships, webinars, conferences and online courses should be recorded with the business purpose. Keep invoices and course descriptions where possible. If the training is partly motivational or personal development, apportionment may be needed or the claim may be weaker.
VAT, Import VAT and Record Keeping for Ecommerce Expenses
VAT treatment is separate from whether an expense is deductible for tax. If you are VAT registered, you may be able to reclaim input VAT on many business expenses, provided you hold valid VAT invoices and the expense relates to taxable business activity. For ecommerce sellers, VAT records can become complicated because marketplaces, overseas suppliers, digital services, import VAT, postponed VAT accounting, EU OSS/IOSS and reverse charge rules can all appear in the same bookkeeping file.
The VAT registration threshold is based on taxable turnover, not profit. A seller with low margins can still cross the threshold quickly. Once registered, you should record gross sales, output VAT, input VAT, marketplace VAT adjustments and import VAT clearly. If you import goods, keep C79 certificates, postponed VAT accounting statements, freight invoices, duty documents and supplier invoices together. Missing records can mean lost VAT recovery and weak evidence if HMRC reviews your return.
For digital subscriptions from overseas suppliers, the reverse charge may apply. For marketplace sales, the VAT position can depend on whether goods are in the UK, whether the customer is in the UK or EU, whether Amazon or another marketplace is deemed supplier, and whether the seller is established in the UK. Because these rules can be complex, ecommerce VAT should be reviewed by a specialist, especially if you sell through Amazon UK/EU, Shopify international stores, eBay Global Shipping or TikTok Shop.
| Record Type | Why It Matters | How Long to Keep |
|---|---|---|
| Supplier invoices | Proves COGS, VAT and product cost | Usually 6 years |
| Marketplace settlement reports | Breaks down gross sales, fees, refunds and reserves | Usually 6 years |
| Import VAT and duty records | Supports COGS, VAT recovery and customs treatment | Usually 6 years |
| Receipts for subscriptions | Supports software and SaaS deductions | Usually 6 years |
| Mileage logs | Evidence for business travel claims | Usually 6 years |
What Ecommerce Sellers Cannot Claim as Expenses
Knowing what you cannot claim is just as important as knowing what you can claim. Overclaiming increases the risk of penalties, interest, amended returns and HMRC enquiries. The safest approach is to be commercial, consistent and evidence-led. If you would not be comfortable explaining the business purpose to HMRC, do not include it without professional advice.
Common Non-Allowable or Restricted Claims
The following costs are commonly restricted, non-deductible or require careful treatment. Some may still appear in your accounts, but they may need to be added back in the tax computation.
- Personal drawings: money you take out of a sole trader business for yourself is not a business expense.
- Dividends: dividends from a limited company are distributions of profit, not deductible costs.
- Client entertainment: meals, hospitality and event tickets for clients, suppliers or influencers are generally not deductible for tax.
- Ordinary commuting: travel between home and a regular workplace is not usually allowable.
- Personal clothing: normal clothes are not deductible just because you wear them while packing orders or filming content.
- Fines and penalties: tax penalties, parking fines and legal penalties are generally not deductible.
- Loan capital repayments: only the interest element of a business loan may be deductible, not the repayment of borrowed capital.
- Unsold stock purchases: stock not yet sold is usually inventory, not an immediate COGS expense under traditional accounting.
- Private use of assets: sole traders must restrict claims where laptops, phones, cars or equipment are partly used personally.
- Non-business holidays: adding one supplier meeting to a family holiday does not make the whole trip deductible.
Sole Trader vs Limited Company: Expense Treatment Differences
The same business cost can be treated differently depending on your structure. A sole trader is taxed on business profit after allowable expenses. A limited company is a separate legal entity and pays Corporation Tax on taxable profits. The company can deduct the costs of running the business, but payments to the owner need correct treatment as salary, dividends, reimbursed expenses, director loan movements or rent. Mixing personal and company money can quickly create messy records.
Sole traders often find mixed-use claims more straightforward because they can claim a business proportion directly. Limited companies must be more formal. For example, a company mobile phone contract may be provided tax-efficiently if structured correctly, while a personal phone contract reimbursed casually may need apportionment and records. A company can pay staff, directors and contractors, but payroll and benefits rules must be followed.
| Area | Sole Trader | Limited Company |
|---|---|---|
| Tax paid on profit | Income Tax and National Insurance | Corporation Tax, then tax on salary/dividends extracted |
| Home office | Simplified expenses or actual business proportion | Home working allowance, reimbursement or documented rent arrangement |
| Owner payments | Drawings are not expenses | Salary may be deductible; dividends are not |
| Private use | Restrict expense claim to business portion | Benefits in kind and director loan rules may apply |
| Equipment | Capital allowances restricted for private use | Company claims if asset belongs to company and is for business |
How to Organise Ecommerce Expenses Each Month
The easiest way to avoid year-end stress is to build a monthly process. Ecommerce bookkeeping is harder than normal bookkeeping because sales deposits rarely equal sales. Marketplaces deduct fees before payout, payment processors net off charges, refunds appear in separate reports, advertising may be billed from different cards, and inventory purchases may be paid months before the stock is sold. A monthly workflow keeps everything controlled.
-
Download marketplace and payment reports
Collect Amazon settlements, Shopify payouts, Stripe statements, PayPal reports, eBay reports and TikTok Shop statements. Reconcile gross sales, fees, refunds and reserves rather than posting only bank deposits.
-
Match supplier bills and freight costs to inventory
Record product invoices, freight, duty, import VAT and prep costs. Make sure unsold stock stays on the balance sheet and only sold units flow through COGS.
-
Capture receipts and SaaS invoices
Use Dext, Hubdoc, AutoEntry or a shared inbox for receipts. Small subscriptions, app fees and ad bills often disappear if they are not captured monthly.
-
Separate personal and business spending
Use a dedicated business bank account and card. If a mixed-use cost is unavoidable, document the business percentage and keep the calculation.
-
Review VAT and international tax treatment
Check input VAT, import VAT, reverse charge entries, marketplace VAT, EU sales and OSS/IOSS where relevant. Do not wait until the VAT return deadline to fix missing data.
-
Review margins by channel and product
Compare Amazon, Shopify and wholesale profitability after COGS, fees, ads, shipping and returns. This turns tax bookkeeping into commercial decision-making.
Common Ecommerce Expense Mistakes to Avoid
Most ecommerce tax issues are not caused by one large mistake. They come from hundreds of small posting errors repeated every month. Examples include recording Amazon payouts as sales, treating stock purchases as immediate expenses, missing import duty, ignoring currency fees, mixing personal and business costs, failing to record refunds, treating owner drawings as wages, claiming client entertainment, and not keeping VAT invoices. The result is a profit figure that nobody trusts.
Another common mistake is using generic categories that hide what is happening. A single account called “Amazon Fees” is better than nothing, but it does not show referral fees, FBA fees, storage fees, ads, refunds and reimbursements separately. A single “software” account may hide ad tools, inventory systems, email software and accounting apps. Use enough detail to manage the business, but not so much that bookkeeping becomes impossible.
Best Practice Chart of Accounts
Create ecommerce-specific categories: Sales by channel, refunds, COGS, inbound freight, import duty, Amazon referral fees, FBA fees, storage fees, payment processor fees, shipping, packaging, advertising by channel, software, home office, professional fees, staff costs, VAT control and inventory. This makes reports more useful and helps avoid missed deductions.
When to Get Professional Ecommerce Bookkeeping Help
DIY bookkeeping can work when the business is small, has one channel and few transactions. Once you are selling through Amazon, Shopify, eBay, TikTok Shop or multiple payment processors, the records become more complex. If you are VAT registered, importing goods, using FBA, running PPC, holding inventory, paying contractors or preparing for finance or sale, professional ecommerce bookkeeping can save more than it costs.
You should consider help if you cannot explain your monthly profit, your VAT returns take too long, your COGS does not match inventory, your Amazon settlement reports are not reconciled, or you are preparing accounts only once a year. Our Amazon FBA bookkeeping services UK and Shopify accounting services are designed for sellers who want tax-ready books and real management numbers.
Frequently Asked Questions — Ecommerce Expenses UK
Ecommerce sellers can usually claim costs that are wholly and exclusively for the business, including product costs, import duty, shipping, platform fees, payment processor fees, advertising, software, home office costs, staff costs, professional fees, insurance, travel and training related to the existing trade. Mixed-use costs must be restricted to the business proportion.
Yes. Amazon referral fees, FBA fulfilment fees, storage fees, subscription fees, advertising fees and most other marketplace service charges are normally deductible. The best practice is to record gross sales and separately record each fee type from the Amazon settlement report.
Under traditional accounting, stock purchases are usually held as inventory until the goods are sold. The cost becomes COGS when the items are sold or written off. Expensing all stock purchases immediately can understate profit while stock remains unsold.
From 6 April 2026, the approved mileage rate for cars and vans is 55p per mile for the first 10,000 business miles and 25p per mile above that. Motorcycles are 24p per mile and bicycles are 20p per mile. Keep a mileage log showing date, destination, purpose and miles.
Yes, if you work from home for your ecommerce business. Sole traders may use simplified expenses or a reasonable actual cost calculation. Limited companies need a more formal approach, such as reimbursing allowable costs or documenting a rent arrangement. The claim must reflect business use only.
Yes. Shopify subscriptions, Shopify apps, accounting software, inventory tools, repricers, email marketing tools, hosting, domains and other business software are normally deductible where used for the business. Keep invoices and receipts for each subscription.
Influencer payments are usually deductible if they are genuine marketing costs for your products or brand. Keep the invoice, contract, campaign brief and evidence of the deliverables. Product samples may also be deductible where they are genuinely promotional.
Client entertainment and hospitality are generally not deductible for tax, even if there is a business reason. Staff annual events have a separate exemption if they are annual, open to employees and cost £150 or less per head, but this does not make client entertainment deductible.
Keep supplier invoices, marketplace settlement reports, bank statements, payment processor reports, import documents, VAT invoices, receipts, mileage logs, payroll records and inventory reports. UK businesses commonly keep records for at least six years, especially where VAT and limited company accounts are involved.
If your gross trading income is small, the £1,000 trading allowance may be easier. But if your real expenses are more than £1,000, claiming actual expenses may produce a better result. You cannot use the trading allowance and deduct actual expenses for the same trade in the same tax year.
A limited company can deduct costs of running the business before Corporation Tax, but owner payments, personal use, benefits and director transactions need correct treatment. Salary may be deductible through payroll, but dividends are not business expenses.
You may not need one at the very beginning, but specialist help becomes valuable once you have marketplace settlements, VAT, inventory, imports, multiple channels, staff or plans to sell the business. Ecommerce bookkeeping is more complex than simply importing bank transactions.
Need Ecommerce Books That Are Tax-Ready Every Month?
We help Amazon, Shopify and multi-channel sellers track expenses, reconcile settlements, manage COGS, prepare VAT records and produce clean monthly reports.