Brighton has a thriving e-commerce community — Etsy sellers, Shopify stores, Amazon FBA operations, and independent online brands. One question comes up constantly: should I be a sole trader or a limited company?
The honest answer is: it depends on your profit level. Here is the clear-cut guide.
As a sole trader, you pay income tax and National Insurance on your profits directly. At the higher rate, that means around 42–47p in every pound of profit going to HMRC (income tax plus Class 4 NIC). As a limited company director/shareholder, you pay corporation tax on profits (currently 25% for profits over £50,000, 19% on smaller profits), then salary and dividends to extract money — with dividends taxed at lower rates than employment income.
The rough crossover point: For most e-commerce businesses, switching to a limited company typically becomes tax-efficient at around £30,000–£35,000 of annual profit. Below that, the additional admin rarely justifies the saving.
This is why your accountant fees increase when you incorporate. There is genuinely more work involved. For a profitable business, the tax saving more than covers the additional cost — but below a certain profit level, it does not.
E-commerce businesses have some particular factors worth considering. Stock purchases, fulfilment costs, platform fees, and advertising spend are all allowable business expenses — and these can be significant. High expenses mean lower profit, which may push your crossover point higher. Run the numbers on your actual profit, not your turnover.
VAT is also a consideration. If your e-commerce turnover exceeds £90,000, you must register for VAT regardless of business structure. Selling through Amazon or other platforms has specific VAT rules — particularly for overseas sellers using UK fulfilment centres.
Incorporating partway through a tax year creates complications — two sets of accounts, potential overlap of tax periods. If you are thinking about incorporating, the cleanest time to do it is at the start of a new tax year (6 April) or when starting a new business. Your accountant should advise on timing specific to your situation.
E-commerce accounting for online sellers — fixed fees, specialist advice on structure, VAT and stock.
Talk to an AccountantNo — your business structure is separate from which platforms you sell on. All revenue from all platforms is simply your business income. The platform mix does not determine whether you should incorporate, though each platform has its own VAT implications worth reviewing.
Yes. You can transfer the business — goodwill, stock, domain, brand — into the new company. There are tax implications to consider, but it is a standard process. Your accountant manages the transfer and ensures the timing is right.
At £25,000 profit, the tax saving from incorporation is modest and may be outweighed by additional accountancy fees and admin. It is worth discussing with your accountant, but for most e-commerce sellers at that level, remaining as a sole trader is the simpler choice.
Yes. If your gross trading income exceeds £50,000 (from April 2026), £30,000 (from April 2027), or £20,000 (from April 2028), you must comply with MTD for Income Tax as a sole trader.