SPOTLIGHT ON: E-commerce record-keeping and HMRC reporting
What online sellers must record and report
Online selling can scale quickly. That’s great for revenue, but it puts pressure on record-keeping, VAT decisions and how you report to HMRC.
Unlike a traditional business with one sales ledger and one bank account, online selling usually involves multiple moving parts: your website or marketplace, a payment processor, fulfilment providers and often advertising platforms driving demand.
Each of these produces its own reports, timelines and deductions. They don’t always line up neatly with what actually lands in your bank.
At the same time, visibility has increased. Digital platforms now report seller income and activity to HMRC each year. That means HMRC can compare platform data against your tax returns, VAT submissions and digital records.
Selling online doesn’t create a problem by default, but it does mean inconsistencies show up more easily.
Why this matters more than it used to
Online retail remains a significant part of the UK economy.
The Office for National Statistics reported that 28.3% of retail spending was online in December 2025, up from 28.0% in November, with online sales values 11.1% higher than December 2024.
For businesses, that growth usually means:
- More transactions (and more refunds and chargebacks)
- More intermediaries (platforms, processors, fulfilment providers)
- More cross-border sales affecting VAT
- More third-party data that HMRC can cross-check
The goal is simple: keep records clean and consistent so you can run the business properly and support your tax position if needed.
What counts as “selling online”?
From a compliance point of view, it doesn’t matter whether you sell:
- Through your own website (e.g. Shopify)
- Through marketplaces like Amazon, eBay or Etsy
- Through social platforms
- Via payment systems like PayPal or Stripe
What changes is where the data sits, and whether the platform has reporting obligations to HMRC.
The core principle
Tax is based on profit.
Sales income (turnover), less allowable costs, equals taxable profit.
But HMRC expects evidence.
That means your records need to show:
- What you sold
- When you sold it
- What you were paid (and what was deducted)
- What it cost you
- Any VAT charged or reclaimed
- How your tax figures were calculated
The key point: you need to record gross activity — not just what hits your bank.
What to keep
1. Sales records (gross, not payouts)
For each sales channel, keep:
- Order dates and numbers
- Customer location
- Items, quantities and prices
- Delivery charges
- Discounts and vouchers
- Refunds and cancellations
- VAT charged
Common issue: treating payouts as sales.
Payouts are usually sales minus fees and refunds, so relying on them can understate turnover.
2. Platform reports
Keep:
- Monthly statements
- Transaction-level exports
- Settlement reports
- VAT invoices for fees
Save these regularly — platform data can change after refunds or disputes.
3. Payment processor records
Include:
- Payout reports
- Chargebacks and disputes
- Fees and currency charges
- Any reserves held
4. Cost evidence
Keep invoices and receipts for:
- Stock and imports
- Shipping and packaging
- Fulfilment costs
- Software and subscriptions
- Advertising
- Professional services
- Staff and subcontractors
5. Bank records
Alongside statements, keep:
- Reconciliation schedules
- Notes for unusual items
Separate accounts or clear tracking makes this much easier.
6. Stock records
Keep track of:
- Stock received
- Inventory movements
- Returns and write-offs
- Stock counts
This supports both operations and profit accuracy.
How long to keep records
- Self assessment: at least 5 years after the filing deadline
- VAT: typically 6 years (10 years for OSS/MOSS)
- Limited companies: generally 6 years from the end of the financial year
In practice, many businesses keep six years plus the current year.
Platform reporting to HMRC
From 1 January 2024, digital platforms must report seller income and details to HMRC annually.
This includes:
- Name and address
- Date of birth (for individuals)
- Tax identifiers (e.g. NI number or company number)
There is an exemption for low activity (fewer than 30 sales and under €2,000 - about £1,700).
What this means in practice
- HMRC can see platform-level data
- Differences between your returns and platform figures may trigger questions
- Keeping accurate records is more important than ever
A simple control:
Reconcile platform totals to your accounts regularly.
VAT considerations
UK threshold
For 2025/26, the VAT threshold is £90,000 (rolling 12 months).
Common VAT issues
- Cross-border sales
- Marketplace VAT rules (especially under £135 consignments)
- Import VAT documentation
Missing paperwork is one of the most common reasons VAT reclaims are challenged.
Making Tax Digital (MTD)
MTD for VAT
All VAT-registered businesses must:
- Keep digital records
- Submit VAT returns via compatible software
Late submissions now operate under a points-based penalty system.
MTD for income tax (from April 2026)
Applies to sole traders and landlords with income over £50,000 (2024/25).
This means:
- Quarterly updates
- Digital record-keeping
Even now, it’s worth preparing your systems to handle this.
A practical workflow
Monthly
- Import sales and fees
- Reconcile payouts to bank
- Check refunds
- Store invoices and receipts
Quarterly
- Review VAT position
- Check margins by platform
- Reconcile platform totals
Annually
- Download full reports
- Review stock
- Check VAT position
- Confirm business details across platforms
Common mistakes
- Mixing personal and business transactions
- Recording payouts as turnover
- Missing VAT evidence
- Ignoring overseas stock rules
- Not saving data regularly
Most issues come from small inconsistencies building up over time.
Final thoughts
Selling online can look simple from the outside, but the record-keeping behind it rarely is.
The biggest risks aren’t usually major errors, they’re small gaps that build over time. Missing a month of fees, recording net instead of gross, or losing track of returns.
With the right structure in place, though, it becomes manageable.
