<img height="1" width="1" style="display:none;" alt="" src="https://dc.ads.linkedin.com/collect/?pid=986314&amp;fmt=gif">

I’d like to learn more about Linford Grey.

read

The Basics of Ecommerce: How to Get Started

By Adam Pritchard

A lot of enterprising individuals have started selling online via an ecommerce store and as accountants specialising in ecommerce we get quite a few enquiries around the same topics. Below you’ll find the top three questions we get asked by aspiring entrepreneurs and the answers to these questions.

 

1. Do I have to register my Shopify account as a business?

This is always a bit of an imprecise question and is often aimed at better understanding the optimal corporate structure for a small and growing ecommerce business and is not just restricted to Shopify.

If you are selling online you are trading and therefore you already have a business.  The profits of that business will need to be properly recorded and subject to tax each year.  Precisely how they will need to be recorded and taxed is the subject of the next question. 

 

2. Should I incorporate a limited company for my ecommerce business?

This is often a matter of preference.  Limited companies come with more administrative burdens and as the owner manager of the limited company it will be your obligation to ensure that the company’s statutory accounts, confirmation statement and corporation tax return are all filed on time and any liabilities paid.

However it is also true that Limited Liability companies also reduce a person’s exposure to risk.  Should something go wrong in the business the shareholder’s exposure is restricted to the value of the share capital and in many instances this is as low as £1.  

Conversely as a sole trader you are personally liable for all the debts of the company and if something goes wrong in the business your personally owned assets could be the forfeit.

Whilst  below certain thresholds of income it is marginally more tax efficient to operate as a sole trader, being a limited company means you have a greater degree of control over when you are taxed and in this way limited companies can act as a tax shelter, whereas operating as a sole trader will mean all profits will be taxed.

 

3. Do you need a separate bank account for your ecommerce business?

Yes. 

A separate bank account that deals exclusively with the costs and revenues associated with trading is an absolute prerequisite.

You will also need an accounting software package and likely a number of other integrations that facilitate accurate and expedient financial administration and operation if you are to know in real time how the business is performing.

 

In Summary:

An ecommerce business is a fantastic opportunity to start and then grow a business in a market with incredibly low barriers to entry.  The technology available has allowed enterprising individuals to start a business for very little money and occasionally very little time.

However it is important that entrepreneurs concentrate on how to optimise their financial operations and administration, not just to fuel further growth and create wealth in the short medium and long term, but to protect it and they should therefore be mindful of the fact that selling online means the following:

  1. You are now trading and in business.  The profits of your activities need to be recorded, reported and taxed. 
  2. The best way to manage this is by opening a new business bank account and subscribing to an accountancy package.
  3. Seek the right kind of help early on in the process.  E-commerce is a specialism, there are many different platforms, gateways and integrations, and knowing about them could make the difference to a first time retailer. So be careful and a little more specific when choosing your advisors and make sure they have the relevant expertise.

If you have any further questions or you are looking for an accountant for your ecommerce business please have a look at the services we offer on our Experts in Ecommerce Accounting page.

Our team is more than happy to help and set your ecommerce business up for success. 

 

Tags: Ecommerce

Related Articles