Tax deductions for eCommerce businesses

If you are running or starting an eCommerce business, you'll want to know about the available tax deductions for eCommerce businesses 

Tax deductions for eCommerce businesses

We set out below  some of the most useful tax deductions for eCommerce businesses.

Using your home as an office

If you spend the majority of your time at home working on your business then it should be possible to claim a deduction for using part of your home as a workspace. There are several ways you can do this:

  • Claim the costs for converting part of your home or building an outside office 
  • Claim a business proportion of the total costs of running your home as a workspace. If you operate as a limited company you could charge it rent
  • Charge your business a fixed rate deduction £4 a week or £208 per year

Co-working space

If you run your business from a co-working space, the costs associated with the space may be eligible to be deducted as office costs. Similar to claiming the costs associated with a traditional office space, you may be eligible to deduct the cost of rent, utilities, supplies, and any equipment that you use in the co-working space.

Mobile phone and internet

If you use your mobile phone for customer service, talking to suppliers, and other business purposes, you can deduct the cost for the portion of the bill that’s related to your eCommerce business. Alternatively if you operate as a limited company your company can pay for the cost of a mobile phone - see here

If you're an  eCommerce business you can’t function without an internet connection. This means that your business’s internet bill is tax deductible. If your business shares the same internet service provider with the rest of your household, you’ll need to calculate and deduct the proportion attributable to your eCommerce business.

Website infrastructure, plugins, apps, themes and software

You need an online store to run a successful eCommerce business. Therefore the cost of hosting your website, registering a domain, and paying for technical management to keep your site running smoothly are all potentially tax deductible. We've covered website costs in more detail previously

Additionally you can claim for that wordpress plugin you bought and any themes used to upgrade your website. Similarly, any apps used to track your competitors, or process your sales transactions (e.g. A2X, Xero)  are also tax deductible provided they're used for your business.

Freelance contractor costs

If you hire a freelance contractor to design your website, write content, or take photo of your products, these costs are tax deductible. However bear in mind that HM Revenue are often on the lookout for business owners who may attempt to classify employees as freelancers in order to avoid PAYE costs etc.

Office supplies and packaging

If you're carrying your own stock rather than drop shipping you need to have your offices stocked at all times. Your customers are always purchasing your stock so supplies for packaging, shipping, and operating the online business are tax deductible.

You can also deduct expenses for office equipment, paper, boxes, tape, ink, markers, and all the other supplies your office needs to run efficiently.

Delivery costs

Most costs you incur from shipping goods to customers are tax deductible. These include expenses for postage, packing material, subscriptions for postage meters, envelopes, and delivery charges. 

Motor and travel expenses

If you use your car to deliver packages, meet clients and suppliers or conduct other business activities, then generally speaking you have two options:

  • Claim a mileage allowance for business miles to cover your vehicle running costs. This is 45p per mile for the first 10,000 miles travelled and then 25p per mile thereafter. If you trade as a limited company you can pay yourself business mileage allowance tax-free. Your company also obtains a tax deduction for any mileage allowance paid to you
  • Claim a business proportion of your vehicle's running costs if your a sole trader or partnership.  The situation is different if you trade as a limited company - see here

The tax rules surrounding travel expenses are complex, though in broad outline provided the costs were incurred primarily for business purposes they may be tax deductible. Typically such expenses can include transport costs (flights where international travel is involved)  conference tickets etc.

Accommodation and subsistence costs

Where hotel costs, meals etc are incurred as a result of a business trip (see above) they should be tax deductible. However HM Revenue consider client entertaining as a result of business meetings etc is not a tax deductible expense.

Business insurance, business interest and bank fees

Any premiums paid for non-health related insurance , for example business or public liability insurance  will qualify for a tax deduction.

If you use a credit card to pay for business expenses throughout the year, or secure a small business loan, any interest paid is tax deductible. Additionally, any bank charges relating to your business bank account are also tax deductible.

Professional services

Last and by no means least any accountancy and legal fees paid to help manage the financial and legal aspects of your eCommerce business are tax deductible. 

For more useful information, check out our Ebooks here.

Feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk

Alternatively, please feel free to complete our Business Questionnaire here.


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