Running an online store on Shopify, Amazon, eBay or TikTok Shop can take off quickly, but growth can just as easily stall if your accounting doesn’t keep pace. Below are ten of the most common accounting mistakes we see among UK eCommerce businesses, along with simple fixes to keep your cash flow steady, your VAT returns accurate, and HMRC off your back.
1. Mixing Personal and Business Finances
Mistake: Paying for advertising or suppliers with a personal card, or using business funds for household expenses.
Fix: Open a dedicated business bank account and connect it to cloud accounting software such as Xero, QuickBooks, or Sage. Set up automated bank feeds so every transaction is recorded automatically.
2. Recording Marketplace Payouts as “Sales”
Mistake: Marketplaces like Amazon and eBay pay you after deducting their fees, refunds and VAT. Recording the net payout as your total sales skews both your revenue and profit.
Fix: Use gross order reports instead. Record total sales, fees, and refunds separately to ensure accurate financial statements and VAT returns.
3. Overlooking Overseas VAT Rules
Mistake: Many online sellers forget that selling internationally means following VAT rules for each region, including EU OSS, IOSS, and UK import VAT.
Fix: Map out all your fulfilment routes. Register for EU-OSS or IOSS if your EU sales exceed €10,000, and use Postponed Import VAT Accounting (PIVA) for imports over £135.
4. Missing Making Tax Digital (MTD) Deadlines
Mistake: VAT MTD is already mandatory for all VAT-registered businesses, and from April 2026, sole traders earning £50,000+ must file quarterly income tax updates.
Fix: Move to MTD-compliant software now. Automate VAT submissions as part of your month-end process to stay compliant and avoid penalties.
5. Inaccurate Stock Records for Third-Party Warehouses
Mistake: Relying solely on reports from Amazon FBA or third-party logistics (3PL) providers can create errors, from missing stock to overstated profits.
Fix: Reconcile your stock records monthly using a FIFO (first in, first out) or weighted-average method. Record goods in transit and investigate any discrepancies early.
6. Capitalising Advertising Spend Incorrectly
Mistake: Treating ad spend as a long-term asset when it should be an expense. Under UK GAAP, marketing spend rarely meets the criteria for capitalisation.
Fix: Expense your day-to-day PPC, influencer and campaign spend as incurred. Only capitalise significant website or software development costs that deliver lasting benefits.
7. Forgetting to Accrue for Payment Gateway Fees
Mistake: Stripe, PayPal, and Klarna fees often appear in the following month, meaning your profit for the current month is overstated.
Fix: Post an accrual at month-end for estimated fees (for instance, 2.5% of card turnover). Reverse the entry when the actual statement arrives.
8. Misunderstanding the £1,000 Trading Allowance
Mistake: Side-hustle sellers often assume the £1,000 trading allowance applies to profits, it actually applies to total income.
Fix: Track your gross sales from every platform. If they exceed £1,000, register for Self Assessment and either deduct your actual expenses or claim the £1,000 simplified allowance.
9. Ignoring Chargeback Ratios
Mistake: High chargeback rates increase your payment processor fees and can even result in suspended accounts.
Fix: Monitor disputes as part of your key performance indicators (KPIs). Budget for refunds and set up a “returns reserve” account to manage cash flow smoothly.
10. Overlooking Marketplace VAT Errors
Mistake: Marketplaces are responsible for VAT on certain transactions, but misclassified listings can leave you liable for VAT you shouldn’t owe.
Fix: Run quarterly SKU checks and review VAT classifications. Correct any listings marked incorrectly, particularly those labelled as “VAT handled by marketplace”.
Quick Reference: Mistakes and Fixes
| Mistake | Financial Impact | Simple Fix |
| Mixing personal & business funds | Messy audit trail | Separate bank accounts & automated feeds |
| Recording net payouts as sales | Understated revenue | Record gross sales & split fees correctly |
| Ignoring overseas VAT | Double taxation or penalties | Register for OSS/IOSS & use PIVA |
| Missing MTD deadlines | Fines from HMRC | Move to MTD-compliant software |
| Poor stock control | Phantom profits | Monthly stock valuation & reconciliation |
| Capitalising ads incorrectly | Inflated assets | Expense routine marketing |
| Missing gateway fee accruals | Overstated profits | Post month-end accrual |
| Misusing £1,000 allowance | Unfiled taxes | Track gross income & file Self Assessment |
| High chargeback ratio | Frozen payment accounts | Track disputes & budget for refunds |
| Marketplace VAT errors | Unexpected VAT bills | Quarterly SKU and VAT audit |
Need an Accountant Who Understands eCommerce?
At Accounting People, we help online businesses make sense of their numbers, from marketplace accounting and VAT compliance to growth planning and real-time reporting.
Whether you’re selling through Shopify, Amazon, TikTok Shop or eBay, our dedicated eCommerce accountants can help you stay compliant, improve cash flow, and scale sustainably.
Let’s simplify your eCommerce accounting, book a quick chat with us today.
Frequently Asked Questions About eCommerce Accounting
Do small eCommerce businesses need to register for VAT?
Yes. Once your taxable turnover exceeds £90,000 in any rolling 12-month period, VAT registration is mandatory, even if most of your sales come through marketplaces like Amazon or eBay.
Which accounting software is best for online sellers?
Xero, QuickBooks, and Sage all integrate seamlessly with Shopify, Amazon, and PayPal. Look for software with live bank feeds and marketplace connectors.
Accounting People are certified Xero partners, and we can help you set everything up correctly from day one.
How often should I reconcile Amazon FBA stock?
Ideally, every month. Use Amazon’s inventory reports alongside your accounting records, and perform a physical stock count at year-end to ensure your cost of sales (COS) figures are accurate.
