If you sell products through platforms such as eBay, Amazon or Etsy, the introduction of MTD for Marketplace Sellers could require significant changes to the way you keep your records and report your income to HMRC.
Many online sellers currently use spreadsheets, download reports when needed, or simply rely on their marketplace dashboards. However, Making Tax Digital for Income Tax (MTD for ITSA) introduces new requirements that mean these methods may no longer be sufficient.
The good news is that while the changes can seem overwhelming at first, the right software and support can make the process much easier.
What Is MTD for Income Tax?
Making Tax Digital for Income Tax is HMRC’s move towards a fully digital tax system.
If your qualifying self-employed and property income exceeds the relevant threshold, you will need to:
- Keep digital records
- Submit quarterly updates to HMRC
- Complete an end-of-year final declaration
- Use compatible software to maintain and submit your records
As a result, the traditional approach of keeping records in spreadsheets and filing one annual Self Assessment return is changing.
Why Marketplace Sellers Face Additional Challenges
For many self-employed individuals, MTD may simply involve connecting a business bank account to accounting software and keeping records up to date.
However, MTD for Marketplace Sellers is often more complex.
This is because marketplace platforms act as a middleman between your customers and your bank account.
For example, when you make a sale on Amazon, eBay or Etsy:
- The customer pays the marketplace
- The marketplace deducts fees and charges
- The marketplace transfers funds to your bank account
- The transfer may represent hundreds of individual sales
Consequently, recording only the bank transfer is no longer enough.
Under MTD, each transaction needs to form part of your digital records. Therefore, sellers need systems that accurately capture marketplace activity rather than relying on monthly summaries.
Why Spreadsheets Alone May Not Be Enough
One of the biggest misunderstandings surrounding MTD for Marketplace Sellers is the belief that a spreadsheet summary will satisfy HMRC’s requirements.
Unfortunately, this is unlikely to be sufficient on its own.
HMRC requires digital records to be maintained and transferred digitally between systems. As a result, many marketplace sellers will need dedicated accounting software rather than standalone spreadsheets.
This often comes as a surprise to online sellers who have successfully managed their businesses using spreadsheets for many years.
What Software Will You Need?
Most sellers will need MTD-compatible software such as:
- Xero
- Sage
- QuickBooks
- FreeAgent
These systems allow you to maintain digital records and submit information to HMRC when required.
In addition, many of these platforms can connect directly to your business bank account using bank feeds. This helps automate parts of the bookkeeping process and reduces manual data entry.
However, for marketplace sellers, connecting the bank account is only part of the solution.
The Marketplace Integration Challenge
Many sellers don’t realise that linking the bank feed alone does not provide a complete picture of their business activity.
After all, the money arriving in the bank account is usually the net amount after marketplace fees, commissions, refunds and other adjustments.
Therefore, sellers often need additional tools to bridge the gap between their marketplace accounts and their accounting software.
Depending on the platform, this may involve:
- Using marketplace integration software
- Using bridging tools
- Importing CSV files into the accounting software
- Uploading transaction reports regularly
While these solutions are effective, they do require proper setup and ongoing management.
Beware of Double Counting Sales
Another common issue involves duplicate income.
For example, a seller may record sales within the marketplace integration and then accidentally record the transfer received into the bank account as income again.
As a result, sales can be double counted.
This simple mistake can significantly overstate profits and create unnecessary tax liabilities.
Although accounting software is powerful, it still relies on being set up correctly. Consequently, many marketplace sellers benefit from professional guidance when first implementing their systems.
Can You Still File Directly Through HMRC?
One important change many people are unaware of is that MTD submissions will no longer be made through HMRC’s traditional online Self Assessment system.
Instead, you will need compatible software to submit your information.
This means software is no longer simply a bookkeeping tool. It becomes the method through which you comply with your tax obligations.
Therefore, choosing the right software and setting it up correctly is becoming increasingly important.
Should You Do It Yourself or Work With an Accountant?
There is no right or wrong answer.
Some marketplace sellers are comfortable managing their own bookkeeping and software. In these cases, training and support can help ensure everything is set up correctly from the start.
Others prefer the reassurance of working with an accountant who can manage the process on their behalf.
Either way, the key is to prepare early rather than waiting until MTD becomes mandatory for you.
By taking action now, you can avoid unnecessary stress and spread the learning process over time.
How JDH Accountants Can Help
Although MTD for Marketplace Sellers introduces additional complexity, it doesn’t need to become a headache.
At JDH Accountants, we help online sellers understand their obligations, choose suitable software, and implement systems that work for their business.
Whether you sell on eBay, Amazon, Etsy or multiple platforms, we can help you avoid common pitfalls, understand your digital record-keeping requirements and prepare confidently for MTD.
Some clients simply want advice and software training. Others prefer us to manage everything for them. Either way, we’re happy to help.
If you’re unsure how MTD will affect your online business, get in touch with our team today. Together, we can create a solution that saves time, reduces stress and keeps you compliant with HMRC requirements.