Amazon sellers: a company saves tax on profit you leave in

At £80,000 of profit, an Amazon seller who takes every pound out pays less tax as a sole trader. A company's saving comes from the profit left in it.

A limited company does not cut an online seller's tax bill on its own. It cuts the tax on profit that stays in the business. For an Amazon seller who draws everything out to live on, the sums at 2026 to 2027 rates favour staying a sole trader, even at £80,000 of profit.

That runs against what many sellers are told, so it is worth seeing why.

Two ways of taxing the same profit

A sole trader pays Income Tax and Class 4 National Insurance on all of the profit, whether it is spent or left in the bank. Outside Scotland, for 2026 to 2027, that is 20 per cent tax and 6 per cent National Insurance on profit between £12,570 and £50,270, then 40 and 2 per cent above it.

A company pays Corporation Tax first: 19 per cent on profits up to £50,000, 25 per cent above £250,000, with marginal relief in between. The owner then pays tax only on what comes out. A £12,570 salary is free of Income Tax, but the company pays 15 per cent employer National Insurance on the part above £5,000, and a company whose sole director is its only employee cannot claim the Employment Allowance to cancel it. Dividends above the £500 allowance are taxed at 10.75 per cent in the basic rate band and 35.75 per cent above it.

One seller, two choices

Illustration, not a real client. Imran sells kitchenware through Amazon FBA from Hounslow. After fees, stock and advertising, the business makes £80,000 of profit in 2026 to 2027. He has no other income.

As a sole trader he pays £19,432 of Income Tax and £2,856.60 of National Insurance, £22,288.60 in all, and keeps £57,711.40.

Through a company, he takes a £12,570 salary, which costs the company £1,135.50 in employer National Insurance. Corporation Tax on the remaining £66,294.50 is £13,818.04, about 20.8 per cent after marginal relief. That leaves £52,476.46 that could be paid as dividends.

If he takes it all out, part of it falls in the higher rate band and the dividend tax is £9,281.58. He keeps £55,764.88, which is £1,946.52 less than as a sole trader.
If he takes £45,000 a year to live on, he needs £36,275.91 of dividends, taxed at £3,845.91. Tax across the company and Imran comes to £18,799.45, which is £3,489.15 less than as a sole trader, and £16,200.55 stays in the company.

The second result is the real case for a company, and it comes with a condition. The £16,200.55 is taxed again as a dividend when it comes out. While it stays in the business as next season's stock, the saving holds. When it is drawn, the saving shrinks by the dividend tax paid then.

Why Amazon sellers are the ones it suits

FBA sellers rarely take all their profit out. Stock for the next season has to be paid for months before it sells, so part of every year's profit is already spoken for. A seller who reinvests a third of the profit each year is exactly the seller a company helps. A seller who spends every pound is not, at least not at this level.

A company also costs more to run. It files accounts at Companies House, a Corporation Tax return, a confirmation statement and payroll every year, and moving an existing business across has its own steps for the stock and the VAT number. Those costs come off the saving before anyone celebrates it.

The three numbers that decide it

Turnover is not one of them. What matters is:

your profit after every cost, including the stock you are carrying;
how much you need to take out each year to live on;
whether either will change in the next two or three years, for example a partner's income, a mortgage application or a plan to sell.

The rates for 2027 to 2028 published with the Budget on 28 October leave Corporation Tax, dividend tax, the Personal Allowance and the National Insurance thresholds where they are, so the comparison above holds for next year too.

If you sell across several channels, our page for online sellers explains how we model both structures against a seller's real accounts. Start with the second number, what you actually need to live on. It matters more than the first.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for ecommerce sellers. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by Ihsan Adityawarman on Pexels.