5 Factors to Consider When Setting up an E-Commerce Business in the UK

Nearly half of all retail sales in the UK comes from E-commerce. Although a startup is
incredibly rewarding as an online venture, it takes more than just launching a website. For
those contemplating creating an registering e-commerce enterprise, here are some things
you should consider.

1. Do e-commerce businesses require a license?

Much depends on the geographical reach of your trading activities and the type of goods
and services. If your business caters to the UK, there is no need for you to apply for a
license. The second category might deem it necessary – for instance, trading of restricted
goods such as alcohol. Even more so, selling goods beyond the UK and into the EU.

Let’s say Michael has an online toy shop that caters to customers in the UK. In this case,
Michael need not fill out a license application. On the other hand, Peter has a business that
sells bourbon online to UK customers. Now Peter needs a license. Yet another venture is
that of Winona, who sells shoes using the e-commerce model to customers in Italy and
France. Here, Winona also needs a license.

Although having a business license is not a mandate for selling unrestricted goods and items
within the UK, proprietors need to register their business venture with Her Majesty’s
Revenue and Customs (HMRC). The stipulated timeline of the said registration is up to three
months after the business commencement date. You can follow the registration steps on
the UK Government website.

Example: In May 2020, Sarah launched her e-commerce fashion and jewellery company. She
can register her business with the HMRC any time before July 2020.
Are you into selling restricted items such as alcohol? You will need to avail a few licenses,
including a personal license and a premises license. Visit the UK Government’s website to
know more.

2. Any thoughts on maintenance of bookkeeping?

Bookkeeping refers to recording and tracking the financial exchanges that make up business
transactions. Professionals (known as bookkeepers) streamline all your business activities and transform the raw data into presentable and analytical reports. This is the first step that entails accounting. Your business enterprise, too, has this said legal obligation. Prospective entrepreneurs often undermine the vitality of keeping financial records of every
pound spent.

Here’s why bookkeeping is important:

Preparing budgets
A budget serves as a predictive measure of income and expenditure; the prediction helps
understand how your financial resources are used. More so, they are akin to a benchmark.
Having a budget enables you to make informed decisions and take calculated risks.

Tax obligations
You must keep all the information and documents handy for completing your tax filings and
obligations on time. The professional bookkeepers at Osome are skilled at helping you
reduce tax liabilities by utilising government-sanctioned deductions.

Financial Management
The short-hand for this is finance- or expense-tracking. Doing so helps you take charge of
your finances, including timely payment of bills and receipt of outstanding invoices for your

Several small-scale companies do not have full-time accountants on their payrolls. Instead,
they generally hire one bookkeeper or outsource the job.

3. Is your e-commerce selling endeavour in line with the rules laid out by the UK government?

E-commerce is not a directionless vacuum, despite the scattered virtual spectrum. When it
comes to e-commerce business activities, there are rules that you need to follow. The UK
government has compiled an extensive set of procedures for online and distance selling. The
gambit of regulation covers everything from before, during, and after order placement. It
entails how online customers can place orders and how companies can set total delivery

Your website design and copy are the faces of your venture; they are integral in getting that
first impression bang on. But, a digital business is quite extensive, and having a one-size-fits-all rulebook can be deemed disastrous. With that said, there are special rules for digital
services, including computer games, in-game purchases, TV and film, mobile apps, computer
programs, and others.

All the required regulations are here.

Before order placement by customers, you need to:
● Put forth clarity to prospective customers regarding the payment. For instance, there
must be a clear and visible “pay now” button.
● Put up a clear display of how customers can pay, including Visa, Mastercard, or
Paypal. Also, delivery options and costs have to be mentioned explicitly.
● List down the order placement steps.
● Have in place corrective measures for erroneous order placements.
● Make it clear about the languages available when browsing over your company
● Ensure terms and conditions are accessible to customers in downloadable and
printable formats.
● Mention the email address that customers can use to get in touch.
● Provide your VAT number, if registered
● Clearly describe your items on sale – products, services, or digital content; the more
information, the better the credibility.
● Mention the total delivery cost, including its calculation.

The rules to follow after the order placement:
● Confirm the contract as soon as possible. For physical items, this could be at the time
of delivery. For services, the contract confirmation should come upon the service
commencement or download. For instance, send out an email when the digital
content is downloaded.
● Provide a copy of the contract that your customers can save for future reference –
via email.
● Deliver the ordered items within 30 days, unless specified otherwise.

The above rules are in no measure exhaustive. Check the UK government website for an
updated and completed list of rules. They are made to help protect the consumers’

Therefore, non-following of rules shall entail financial compensation. In extreme cases, a
prison sentence. (Note: that distance selling is for goods and not services.)

4. Are you using multiple online platforms for your e-commerce activities?

What is the method used for consolidating reports?
E-commerce ventures generally use several platforms for the smooth running of their
businesses. More platforms mean more transactions.

Every platform is peculiar in its reporting methodology, including formats, timelines, and
financial data compilation. For instance, Amazon statements comprise a repository of over
150 different charges. Facebook runs its sales drives through Shopify. Stripe, yet another e-
commerce platform, dumps online receipts from your website in a unique format.

The challenge knocks on your company’s doors when preparing the yearly reports and
bringing them into a unified standard. Doing so can be overwhelming. For example, many
business entrepreneurs manually download Paypal transactions and create invoices in Xero.
Now, you could easily spend valuable time getting other things done. Your best call is to
employ someone who can render the processing of the transactions in an automated

We at Osome can help you drop the bag of bricks by taking on the responsibility.
You can now spend your Sunday with family or doing what you love or maybe pursue a long-
awaited hobby while we take care of the nitty-gritty.

5. Do you intend to sell your items in more than one country or jurisdiction?

There are different rules for every type of good or service. Moreover, there are exemptions
in place. The HMRC does its job of ensuring that you register for VAT and pay liability on
your UK sales. Fail to keep up with the VAT or other taxes, and penalties shall follow suit.
Extreme cases might entail restraint of trade through online marketplaces.

As mentioned above, each platform has a distinctive procedure for compiling and sending
out reports. Upon expansion of your e-commerce venture into other jurisdictions, different
Value Added Tax or VAT rates apply.

Plus, every country or jurisdiction entails a different taxonomy. If you are a UK seller
catering to UK customers, the VAT rules that apply differ from EU-based sellers catering to
their customers in the UK. In the simplest of words, selling to a new country or jurisdiction
brings the obligation to pay VAT.

What you need to do:
a) Get on with VAT registration in every country you intend to enter.
b) Calculate and fulfil the VAT filing obligation for every country or jurisdiction.

Remember, things can get out of hand when you scale up your e-commerce activities. Save
yourself from the warning bell and have your accounts in order. Doing so will enhance your
productivity and keep the penalty roadblock at bay.

Here are some questions you can pose to your business administrators:
– What are the VAT regulations for a drop shipper?
– How do I charge my customers for VAT?
– How and when should a foreigner operating in the UK register for VAT?
– Which jurisdiction or country should I start with for expansion?
– How do I prepare for Brexit when selling to other EU countries?
– I operate through Paypal in the US, the UK, and Europe. How do I go about recording
the correct VAT liability?

This post was written by Osome Accountants. If you would like a dedicated full accountancy package for your E-Commerce business, click here for exclusive discounts.

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