The question every Amazon FBA seller asks once their business starts making real money: should I become a limited company? The honest answer: it depends entirely on your taxable profit, not your revenue — and most sellers either incorporate too early (before it saves any money) or too late (after years of overpaying income tax).
The Core Tax Difference
As a sole trader, your Amazon FBA profits are taxed as personal income at 20%, 40%, or 45%, plus Class 4 NI at 9% on profits between £12,570 and £50,270.
As a limited company, the company pays Corporation Tax at 19% (profits up to £50,000) or 25% (profits over £250,000). You extract money through a combination of salary and dividends — and it's the combination that creates the saving.
- Pay yourself a salary up to the NI secondary threshold (~£9,100 in 2024-25) — no employer or employee NI, but you still get NI credits for State Pension
- Take the rest as dividends — taxed at 8.75% (basic), 33.75% (higher), 39.35% (additional), with a £500 dividend allowance
- Leave remaining profits in the company where they attract Corporation Tax rather than Income Tax and NI
The Break-Even Point
The tax saving only materialises when profits exceed a certain threshold. Below this point, the additional accounting and admin costs of a limited company outweigh any tax benefit. As a rough guide, the break-even is typically around £30,000-£40,000 of annual trading profit.
| Annual Profit | Sole Trader Tax (est.) | Limited Company Tax (est.) | Annual Saving |
|---|---|---|---|
| £20,000 | ~£2,500 | ~£2,200 + accountant costs | Marginal or nil |
| £40,000 | ~£7,200 | ~£5,800 | ~£1,400 |
| £60,000 | ~£13,000 | ~£9,200 | ~£3,800 |
| £80,000 | ~£19,800 | ~£13,000 | ~£6,800 |
| £100,000 | ~£27,400 | ~£16,500 | ~£10,900 |
Amazon FBA-Specific Considerations
Inventory reinvestment: if you're reinvesting most of your profit back into stock, you may not be extracting enough to make the dividend strategy worthwhile. A seller earning £80,000 but reinvesting £60,000 is only extracting £20,000 — the tax saving on £20,000 of dividends is modest.
Business sale: a limited company structure can offer significant capital gains advantages. Business Asset Disposal Relief applies differently to limited company shares versus sole trader assets — the difference can be tens of thousands of pounds on a typical Amazon business sale.
Amazon account terms: a sole trader who incorporates needs to update their Amazon seller account to the new legal entity. Amazon's process for this can trigger account reviews. Discuss with your accountant before incorporating.
The Admin Overhead
- Annual accounts filed at Companies House in the required format
- Corporation Tax return (CT600) within 12 months of accounting year end
- Confirmation statement filed at Companies House annually
- Monthly or quarterly payroll RTI submissions to HMRC
- Director's loan account must be tracked — money taken outside salary or dividend is a loan
- Additional accountancy cost: typically £500-£1,500/year more than sole trading
When to Have the Conversation
The right time: when your business has been trading profitably for 6-12 months and net profit is consistently above £30,000/year — or clearly heading there. Don't incorporate based on revenue alone. A specialist Amazon FBA accountant will model the actual numbers for your specific situation.
Making real money from Amazon FBA and wondering whether to incorporate? Our specialist accountants run the actual numbers for your situation and tell you exactly when it makes sense.
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