Making sure the numbers add up: UK Accounting Services ⎜ Ecommerce Accountants LLP ⎜ EP 157
Ryan Cramer: What's up, everyone? Welcome to my corner of the internet. I'm your host, Ryan Cramer, and this is Crossover Commerce, presented by PingPong payments, the leading global payments provider helping sellers keep more of their hard earned money. Hey, what's up, everyone? Welcome again to another episode of Crossover Commerce. I'm your host, Ryan Cramer, and this is my corner of the internet as the introduction implies, where I bring on the best Amazon and e- commerce experts in the space to kind of give you their knowledge and insights to help you level up your business and understanding of whatever topic we're going to be touching on today. But before we dive into everything, I just want to give a quick shout out to our presenting sponsor PingPong payments, this podcast is presented by PingPong payments. No, not a table tennis company or something that you play for fun. It is a solution that actually helps with your cross- border payments. So what does that mean? We're going to be talking about payments today, this is going to be a solution that helps you send money effectively, quickly, and have time saving notions to it, whether that's paying your VA, your supplier, your manufacturer, or any entity in a different denomination, but then also, you can receive in multiple different marketplaces worldwide by using PingPong payments. Saving money is super important, and we'll talk about that by adding to your bottom line. You don't want to pay fees where there's unnecessary ones, and you can actually have control over more of those. So go ahead and sign up for PingPong payments today, you can do that by clicking on the link in the comment section below, if you're watching this live, or it's in this show notes, if you're listening to this podcast, on your favorite destination whether it be Amazon music, Apple podcasts, Google podcasts, Spotify, all of your favorite podcast destinations, that's where Crossover Commerce will be. That being said, this is, again, episode 157 of this awesome show that I have called Crossover Commerce, again, touching on multiple different things in the e- commerce space. I'm excited to talk about today with one of our guests, because in a space where numbers don't always necessarily add up, as entrepreneurs, we want to make sure that the business that we're getting in, whether it be the product, the service, or the industry that we're in, makes sense monetarily, right? So we want to make sure the money is going to we're going to get a profit for the investment that we're putting in. The economics 101, for the time and sweat equity in just the monetary equity that we're putting into a solution or product, we want to make sure that it's going to be profitable for us. That being said, there's all sorts of fees, there's all sorts of regulations, there's all sorts of codes that you have to be up in, no matter what marketplace you might be selling on, it's important to understand what those fees, those regulations, those numbers, what they mean to you as a business owner and as a business or a brand. So that being said, kind of pulling back the curtain today, we're going to make sure that these numbers add up in your favor so that you can continue to grow your business and brand. That being said, I wanted to bring on a Joseph Cox actually of Ecommerce Accountants, he and his team are based in the United Kingdom, and they have an accountancy practice that specializes in working with e- commerce and online businesses specifically. Aside from their accountancy, Joe, who are going to be speaking with today, runs several successful Amazon FBA businesses himself. So he has the inside knowledge of what you need to know in order to have best practices, not getting in trouble with what's called VAT or GST authorities or making sure that money makes sense and the numbers, at the end of the day, make sense, because if you're a brand that's looking to, again, exit your business, or sell your business to a private- equity firm or someone who's looking to take on your business, the number one thing that people always say is having clean books. So that's what we're going to be diving into today. Going into something I like to call making sure the numbers add up, UK accounting services. We'll call it accounting services in general. So let's go ahead and bring on our guests today, Joseph Cox of Ecommerce Accountants. Joseph, welcome to Crossover Commerce. Thanks for joining us today.
Joseph Cox: Hey, Ryan, thanks so much for having me. I can't believe it, 157 episodes, no wonder this is such a professional and slick production, honestly, sitting there in the kind of backstage, it's incredibly impressive.
Ryan Cramer: Well, I appreciate it. It's something that if you do it often enough... I'm going to allude this to any sort of business practices, becomes habitual. The more you do it, the more you become comfortable with it and you get to tweak it as we go. I'm still not happy with my setup inaudible, it's dark in here. I'm still playing around with inaudible, but hey, podcasting can be an audio or visual element, depends on who it is. But I appreciate those kind words, sir, thank you so much. You, yourself, have content that goes out on YouTube as well as sharing knowledge. So for people and our listener who's not maybe as familiar with you, whether they haven't come across your channel or just haven't used your services yet, give me that background, you're a seller, you're a service provider, you're kind of this holy grail, if you will, of e- commerce solution, you help other people, but you know the inside secrets because you are the seller, right?
Joseph Cox: Yeah, I don't think I would describe myself as the holy grail. Probably the nicest thing someone's ever said. But yeah, I'd like to think we've got quite a good knowledge of the space. I suppose to give everyone a quick overview of myself, I started an Amazon FBA business with my friend back in 2013, early 2013. And at the time, I was a trainee accountant at a small firm in London. Probably like most e- commerce business owners, I hated my job, wanted to quit and kind of do my own thing. Si when my friend, he originally did the Amazing Selling Machine, ASM, crosstalk the second cohort of them and he told me he spent like 1, 000s of pounds on this course. And I was just like, " That's crazy, that much money." But yeah, anyway, we did that, it was a real success, and basically got to the point where I could quit my job and work on that full time. But one thing I kind of made sure is that I finished all my training and my qualifications as an accountant just because I thought, " Well, this whole Amazon FBA thing could be a flash in the pan, it could be one or two years." And honestly, slightly segue in here, but I would never have said it, it would have lasted this long, some of the businesses are still so strong, and there's still so many new businesses as we see that our clients coming through. It just shows you that that pie is so big, that people can still make a business these days. But yes, we did that. I got to the point where I was fully qualified, quit my job, wanted to focus full time on our businesses. And I then couldn't find an accountancy to outsource the books to that weren't going to charge me through the nose. I then kind of looked, I just like, "I can't believe the domain Ecommerce Accountants is available." And at the time, I just bought just as like, " If ever I want to use it." And we had five companies that we started, me and my friends, and each one, we'd kind of recruit another friend to kind of operate the brand and we would show them what we done so we had a bunch of SOPs that we made and built out all these brands. Had an office, had a bunch of interns there. Then I just ended up being like this in- house finance department where all I was doing was instead of dealing with all the brands, I was dealing with all the finances, and eventually, because we persuaded all of our other friends to try and start businesses, as they needed bookkeepers or accountants, it just kind of happened that I was like, " Oh, well, I'll do that." Then next thing you know, I had to hire separate bookkeepers and train my own team. So yeah, it just kind of organically happened, really, which is kind of cool.
Ryan Cramer: Right. You're like, " I can do those things. Why am I hiring someone else and spending my hard- earned dollars on that when I could do that myself." Interesting. So crosstalk... Yeah. So that realization, is that what you think is where a lot of business owners become... Oh, go ahead. Sorry.
Joseph Cox: No. I think ideally, I wanted to just give it to someone else who knew what they were doing, but there were no accountants at the time. It's crazy now 2013, 2015 stuff was actually so different. When I went to our accountants, It was a chartered accountant, and I'd say, " Well, here's this business. We're selling goods. We're buying goods in China, we're storing them in Germany and the US." They'd be like, " What? You three 20- year old guys, what's going on?" We'd be like, "No, no, we turn over millions of pounds." And they'd be like... And then they'd see the numbers and just be like, " Well, where are the goods being stored? How are you selling them?" And we're like, " Well, we're not, but Amazon's doing it." And you kind of don't want to give someone... I didn't want to hand over the books if someone doesn't really understand that concept. I was just like, " Well, I might as well do it myself." But if I had someone now, basically if I had me now, I would have definitely outsourced it, given it to me because I've given it to the Ecommerce Accountants because then I could have spent my time focusing on growing those brands and things like that. So I guess for any business owners out there, even if you're in the US, and we can't work with you on your kind of accounting side of things, one of the things you really need to do is always look to find people that you can pay to do stuff so that you can spend your time and effort on actually, I suppose, the things that matter to the business, because ultimately, compliance side of it, that's not going to grow your business, right? It's just something you need to do. As sad as that sounds for me, we're just a necessary evil in some ways. So yeah, the business owner should be marketing, they should be designing products, they should be ensuring that the photos and the listings are optimized, and they shouldn't really be doing the books.
Ryan Cramer: Right. That's what we've always kind of talked about in this podcast is the efficiencies that you need to do as an entrepreneur, what you need to achieve as an entrepreneur, I think when people come to this business, they don't realize all the different complexities that it used to be, quote unquote, a passive part- time job, right? You would be able to throw it up there... You started selling back in 2013,'14. As we both know, the evolution of how selling on these marketplaces has become so much complex over time, now, it's no longer a passive thing, it's a full time job, 24/ 7 almost, to a nature of how am I going to optimize, how am I going to be able to grow? So what you're describing to me, Joseph, is something that an Amazon seller or an entrepreneur should be no stranger to even nowadays, of how do I continue to optimize? Is this one of the most overlooked places, as an entrepreneur, that you can really take this load off of your plate and really optimize yourself as a business owner?
Joseph Cox: Do you mean the accounting function or crosstalk
Ryan Cramer: Yeah, in the... Right, I was going to say is accounting maybe the top thing that you would consider as the most overlooked? Or is there another one that you personally think... Because you are a seller, you are an awesome accountant, is that the most overlooked spacers or something else?
Joseph Cox: It's tough to say because, I suppose, the majority of the businesses I work with are accounting clients. So they've kind of already outsourced that whole department to us. I guess what I would say is the ones who are less successful, or the ones who failed, I kind of notice that they tried to cut corners and do things cheap. So they'll try and do it themselves, and that might come to the photography, it might come to the accounting, what kind of happens is that business owners, although they're saving money, and bootstrapping it, they're kind of doing so much stuff that their business doesn't really progress. And yeah, I mean, to go to the question, what's the thing that I see that people would overlook the most there? I don't think there is one thing, but there's so much stuff, you could look to optimize them in PPC management. There's so many companies out there that do that. Listings management, like actually optimizing that... Or not for Amazon sellers-
Ryan Cramer: Copy writing, yeah, thing like that.
Joseph Cox: And actually, some people... Have you spoke with the guys at Citroen at all? If-
Ryan Cramer: No, I personally haven't talked with them yet.
Joseph Cox: They won't inaudible they're clients of ours, we actually share the same building, which was a complete coincidence, because we've worked together for like, four years. Most of them are ex Amazon employees there. Yeah, I'll introduce you to them because they're really cool guys, but they basically run a service where they help optimize inaudible. And again, less cost... If you're the business owner, and not having to think about that, and you've got people that are experienced doing that, you could then be looking at product sourcing. But even that can be outsourced and trained for VAs, can't it?
Ryan Cramer: Right. I think there's a lot nowadays besides the beginning of a business, right? The products, as an entrepreneur, they or the seller themselves are maybe wanting to jump in inaudible, right, there's not too much in that regards that you can outsource, because that is what is making you money, ultimately. You need to make sure it's efficient, you need to make sure it's sourced correctly. There's not too many things that you can actually rely on other people and say, " Hey, find me this product XYZ." If you are, it's maybe becoming more efficient in, " Hey, this is my product, can I make it cheaper? Or can I maybe get it quicker?" More things like that. But really, the beginning of your business should be what you have your most hand on. And then obviously, there's other things... There are great PPC agencies, accounting agencies, tools and solutions, there's all these different things that you can just buy to help you utilize the resources that are now available, unlike back in 2013, '14. So that evolution, are you still actively a seller or has that kind of been pushed to the side? What's the status of that right now?
Joseph Cox: As of probably about 2016 when I started giving the accountancy my full attention... And that actually happened when... So I went traveling, I took a break from it, went traveling and still had friends being like, " Oh, can you do the bookkeeping? Can you do this?" And I kind of had that as pocket money. But I went from London to China, overland, I got trains and buses all the way down to Beijing. And then yeah, I was like, " Okay, I need a new challenge," because I was kind of getting bored of... On Amazon, what we were doing is very rinse and repeat, and it felt like most of our time was then spent dealing with one- star reviews and things like that, where I wasn't enjoying it as much. But I was really enjoying working with my friends on helping them build their businesses. And sorry, yeah, I must have been an active seller. So no, we basically got that... When I did that, my two main business partners also kind of side working on other projects. And what we found was, we had a bunch of VAs working for us to manage the inventory. I was dealing with the accounts, we had a few other VAs that dealt with customer service, and a few other bits, and it was all just automated. So we kind of had this discussion, we were like, " well, look, it feels unfair if those guys are working on it and I'm not, because then I'm getting some benefit from their work, and the other way round." So we just said, " Well, look, let's all work on separate projects, and basically leave it automated." And then what it's meant is that since 2016, we've not launched any new products. And slowly the ones, as more competition has come along, our ones have been eroded. So there are a few that are still surprisingly strong, but it's nowhere near the level it was kind of almost five years ago now. So the businesses are there, but we haven't really launched anything for a few years.
Ryan Cramer: So if I'm the listener right now, and like... They're probably going to ask me or tell me, " Ryan, why you asking this?" Why not sell the business back then if you would rather move away from it? Maybe instead of managing it, have someone else operate it? As everyone knows, a lot of people in the space do know, there's lots of different companies that would take successful brands that have longevity, have the optimization route, ability to kind of take it to the next level, why not sell it instead of just let it peter out on its own?
Joseph Cox: Now that listener that's asking you to ask that question is an incredibly wise and clever person. And the answer is we actually did try to do that the time, and unfortunately, the space was so different then, we had this exact same problem. We were going to business brokers, there were none, you didn't have EcomBrokers, you know Ben, you don't have... I think, what was his name? Coran from FBA Broker. There are a bunch of specialist niche brokers now that you could go to, even on the big kind of flipper websites, those kind of accommodates when people really understand it. For us, we approached a couple of different brokers, and we also listed on a few of those main websites, and maybe it's on us, because we were a bit too honest. But we basically say like, " Here's this business, it's completely automated. We literally don't spend much time on it." We had all of these discussions. The brokering, the selling process was incredibly long then, because you've got to explain everything to the broker, who then had to explain it to inaudible. I don't know, we spent so much time going back and forth with all these people, and then you get right to the very end, and they almost didn't believe you. Even though you give them access to all the financials, they kind of didn't know what they were looking at. You'd say, well, here's secondary users to my seller central account. Most people back then didn't know what that was, how to use it. And then I guess, because I'm the accountant, I'm showing them all the figures, that may be thinking that there's a conflict of interest.
Ryan Cramer: Yeah, exactly. You're moving money around or something like that.
Joseph Cox: Yeah. And then you've got these young guys being like, " Oh, yeah, we just, to be honest, spend half a day, if that. We've got a bunch of VAs that do all this." And they're like, " Oh, what's a VA?" Whereas now, I feel like there's so many brokerages that we could and should use. The businesses have kind of eroded so much that it's kind of at the point where we're like, " Well, it's just..." Basically, it's building up loads of... quite a bit of cash there, we can just liquidate it at the end. Or maybe we will sell it. But the accountancy, for me and the other guys working on the other things I've made, take up so much more time than are kind of worth more of our time that we just haven't really followed through. Yeah, who knows, we might still do it, I keep meaning to...
Ryan Cramer: It's more of a passive thing right now. But as everyone knows, your main focus now or if they've been listening to this now, your main focus is now helping other people get going in building their brands and being successful on Amazon. So that being said, are we just Amazon focused, or are we ecom focused? I know Ecom Accountants or Ecommerce Accountants can lend a couple different ways. What's the main focus for you guys over there?
Joseph Cox: We are completely a mix. But interestingly, when I started... I guess, because I had a lot of experience with Amazon, like Amazon was the main thing that we dealt with. Then I suppose, as things have changed, we basically, about two years ago, suddenly had... or three years ago, had just loads of people that were drop shipping on Shopify, that just started appearing. So now I'd say it's kind of 50/ 50, that we've got a bunch of Amazon sellers, and now more that come through that are drop shippers, kind of selling on Shopify. I don't know if that was just a trend that more people were doing it, or if it's the fact that now we're starting to have lots of copycat accountants that come along. It's quite trendy now to be like, " Oh, I specialize in a niche." And I think it's the right thing to do. But yeah, you've got a bunch of other people that are having maybe a similar experience that I've had, and also starting their own firms that kind of, say they specialize in it, or do specialize in it. crosstalk
Ryan Cramer: I was going to say, so with that being said, so you guys... A lot of people are trying to replicate the success you guys are doing. A seller might ask you, if it hasn't become inevitable, what would an accountant in this space help me do? What would it be the benefits that come with working with someone as knowledgeable as yourself for a service that's as ingrained in the numbers as you are on a day- to- day basis?
Joseph Cox: Yeah, that's a good question. The biggest benefit would be that we basically save you a lot of time and a lot of headspace. Because by working with us, rather than you asking us how to do things, or sorry, having to tell us how to do things, we've got a very standardized process, we know each of the different platforms inside out. Essentially, we kind of tell you what to do, rather than it being the other way around. And going back to my original kind of story, the issue I had was, I'd be hiring these accountants, potentially paying them money, but then having to also tell them how to do it. Whereas for us, our clients engage with us, and then they're like, " Oh, hey, I sell on Amazon." So we're like, " Okay, cool, we need this, this and this. Let's look at..." If they start selling certain products, or if... Back when, before Brexit, we kind of had a very good understanding of all the different VAT rules and VAT implications for when they were storing goods, and selling them in different jurisdictions. There's just a bunch of, I suppose, nuances in the industry that we're just so familiar with that we'll just have the answer, or if we spot it, we can tell you how to deal with it.
Ryan Cramer: Sorry, I'm thinking about-
Joseph Cox: inaudible.
Ryan Cramer: ...potentially... Yeah, what else? So in that regard, obviously, there's that benefit. When should a seller maybe get involved with accountant services? I'm going to draw a really, really terrible conclusion probably. This is my podcast, so I can do that. People at certain point in their lives, obviously, they can do their taxes by themselves, or they can do with certain services or software, but not... I still do that on a year- to- year basis and whatnot. When you're in the United States, you have to pay your federal, your state taxes and whatnot, it's pretty easy to figure it out yourself. But as more things become involved, like more investments become involved, more finance become involved, you have investment properties, you have children, you have mortgages, all these kinds of things, just like a business, they really start to take on a new line item, if you will, and they get a little more hairy. You're like, " Did I do that right? I'm not really sure, but we're going to move on with it." So at what juncture, if you're going to kind of correlate that same thing with the business owner and entrepreneur in e- commerce world, what is the moment that they need to maybe start really investing in a service like that? There's that fine line, right, of, " I can do this by themselves, it's pretty easy to figure out pros and cons of doing it by myself versus a service." What would that line in the sand be? That once you've crossed that threshold, now's the time, I need to start investing in a service.
Joseph Cox: So, interestingly, you mentioned about doing your own taxes. In the UK, not everybody has to do a tax return. So I'd say that maybe people in the US might be a bit more literate when it comes to their taxes, because is that right? Everyone has to do a tax return?
Ryan Cramer: You do. So you can either pay a service... And technically, this would be if you are a business owner, or if you hadn't generated any sort of income. So clearly, that applies to majority of people, that's oversimplifying it to 10th degree. But for the most part, everyone does have to file some sort of taxes, whether it be unemployment, or some sort of earnings. Then obviously, you have those different tiers based upon, we should pay anymore, or if you get a return. So in theory, everyone is doing that. You should be, by law you need to be, but not everyone does.
Joseph Cox: So that's what's interesting is that in the UK, that's not the case. Actually, here, the only people that have to do a tax return... And again, this is simplifying a bit, but it's essentially those that are self employed, or have kind of other income to declare like business owners or people that are investing. Most people, when they have a job, it's all taken care of by the employer, and they don't have to think about taxes or the government HMRC in the UK, you don't think about it. So for most people... And it's not taught in schools, either, what to do. So for most people, it's actually quite a daunting task that they start, they're starting a business and they don't know what to do. And to be honest, like a quick Google looking at some of the HMRC's guidance, that definitely can help, and you can always figure it out. But it goes back to what I said earlier that it's, I suppose, how you're valuing your time. To someone who's trying to bootstrap it, they're much better at waiting and trying to go on HMRC and figure stuff out themselves. Whereas someone who, I suppose, has got another job, they're kind of funding the business through their other job, that kind of have inaudible side hustle, right? They might say, " Well, I don't want to come home after a hard day's work, and then have to look up legislation on how to register for taxes and things like that, when actually I can just pay someone to do it." But I suppose to give you a a better answer for UK businesses. We typically turn people away or say to them, " Come back to us at a later point," when one, they're kind of not generating any revenue. So if you're starting out, there's no point engaging an accountant because you're better off spending your time and effort focusing on actually getting started and especially spending the money on buying products to begin with, because don't pay me, buy stuff and start making sales. And then it kind of... Honestly, it really depends. It depends on if you're doing it as a sole trader, which is as an individual, or if you're forming a limited company, which is, I think, what you guys would call an LLC or a C- corp.
Ryan Cramer: LLC, yep.
Joseph Cox: Yeah. So once you form a limited company, things become a bit more technical. But company or individual, if you start trading, you're not going to have to file something straight away, you've usually got about a year before you got to do anything. So I'd recommend that people... I suppose, I could get in touch with an accountant first of all just to find out when your first deadline is, and then say to yourself, " Okay..." Then wait nine months or a year or leave a good buffer time before that actual deadline. But just focus on the business then, and if you speak to a good accountant, they should tell you make sure you have good record keeping, have a separate bank account for your transactions, and then that way it makes their life easier down the line, and just focus on the business. The other kind of key times we tell people that they need to start thinking about an accountant, and this is in the UK, would be when your sales are above £ 85,000, so your turnover, or approaching that-
Ryan Cramer: Is that per month or... Is that per month, Joseph, or is that-
Joseph Cox: No, it's a rolling 12 months. So it's basically in a year. So if over the last 12 months your sales have been almost £ 85, 000, and that's the UK VAT registration threshold. So when you cross that point, legally, you're supposed to register for VAT and start collecting and paying it to HMRC. At that point, yeah, you can register yourself and you can do your VAT returns yourself. But I would say that your time is much better off spent actually giving it to a professional who can just do it for you. Even though it's not rocket science, most people can do it, but I think the time saving is well worth it. If you've got a limited company, it's the same thing. It's approaching your year end, usually. But then if, let's say you've been going for two months and suddenly you're generating 100k or 200k in revenue, it's probably worth getting someone in sooner, just to stop that pile of work mounting up.
Ryan Cramer: Or just being audited in general.
Joseph Cox: Yeah, you wouldn't be audited until at least the end of your first year, I think. It'd be a bit of HMRC to do it straight away. But yeah, for a US business, if or anyone that's non UK, if you sell or store goods in the UK, you're now required to register for VAT and start declaring it to HMRC. If you sell on an online marketplace, which is abbreviated to OMP, if you sell on an OMP, like Amazon or eBay, then technically, they're kind of responsible for collecting and remitting the VAT. But technically, you're still then required to say, " I have nil VAT to pay." And you might actually then always be in a reclaim position because you're paying VAT on services somewhere, even though you're not collecting any.
Ryan Cramer: Right. So maybe to clarify, too, for VAT, value added tax, a lot of people in the United States, if you're selling as a brand here in the United States and going into the UK, that's the one thing I always hear of, " How do I navigate that?" Can you kind of give us some basic... What it is, how often people need to pay it, and when it's applicable? Because I know even that changed at the beginning of 2021, those kind of thresholds. We touched on a little bit, but for someone who's thinking, " I want to sell in the United Kingdom, it's the third largest market, if not the second largest market, in the Amazon..." Brexit kind of like through a lot of people off because is its own kind of island, if you will, for lack of better term. No pun intended. But can you kind of give that breakdown of what's different about selling in the UK versus if I sold in the United States in that regard?
Joseph Cox: Yeah. What's interesting with the Brexit debacle, actually, the EU and the... The UK, while it's part of the EU, had planned on making the changes that the UK made on the 1st of January, before Brexit was really given that date. But what then happened was the UK, because of Brexit, said, " Well, we're just going to make the changes on that date." And then the EU said, because of the pandemic, that they would actually postpone those changes until the 1st of July, which they've now done. So the EU and the UK have made exactly the same changes, which they agreed while they were part of the EU, but because of Brexit, just the UK decided to implement it earlier, and everyone's kind of called it a Brexit tax. inaudible no, it's genuinely nothing really to do directly with Brexit.
Ryan Cramer: Interesting.
Joseph Cox: But sorry, yeah, bit of a side story there. You asked how to explain VAT for people in the US?
Ryan Cramer: Yeah, if I'm growing my brand, which I think a lot of people have made that their focal point on 2021, maybe moving into 2022, there's a lot of potential growth. But obviously with the pandemic, I think that slowed a lot of that talk down. But as people start to kind of... The world operates again, start to move in its full capacity, hopefully, sooner than later, a lot of people want to know, if I'm looking at a market as strong as the UK is in terms of Amazon or other types of marketplaces, there's different requirements in terms of taxing numbers and whatnot. How do we make them make sense? What are the VAT requirements or tax requirements? What's different from starting my own storefront and brand in the UK versus maybe in the United States?
Joseph Cox: Yeah. So VAT, effectively, it's a sales tax. So in the US, you handily call that sales tax, in the UK we call it VAT. The difference in the UK versus the US is that in the US, you guys add sales tax on at checkout, right? And as a foreigner, when I go to the US, I find it so annoying because I go, I see like, " Oh, this beer is$ 5." And then I've got my$ 5 ready, and then, oh, it's actually$ 5. 27 or something." And you're like, "But it says it's $5." For us in the UK and in the EU, the concept is it's completely different, stuff's advertised at the price that includes the tax, the sales tax. So if the beer is £ 5, the beer's £ 5, and there's an element of that that's going to be VAT. So as a consumer, it's much nicer because you know what you're paying for. And essentially, for anyone that then wants to sell over here, on Amazon or on Shopify, yeah, it's just the sales tax. If that is a way of boiling it down.
Ryan Cramer: Yeah. So in that regards, is the consumer paying for that, or is the business going to be paying for that?
Joseph Cox: No, certainly. Essentially, the consumer pays for it, because it's included within the price. So you, as the business owner, you're collecting it on behalf of the government, and then you pay it to the government. And what you kind of found historically was that a lot of overseas sellers were obviously not doing that. And that was causing a big problem and a loss of revenue to the government. And it's also unfair, because UK businesses were compliant, because they knew they were supposed to, and overseas businesses weren't, which meant that if you're selling something on Amazon, and let's say you're selling something for £12, the UK business would be selling it actually for £ 10 plus £ 2 VAT, because the VAT rate is 20%, so it'd be 10 plus 20%. Whereas the US business could sell it for £ 11 and actually not pay... would probably not pay the VAT. Some probably were being compliant. We've got clients in the US that are compliant. But you see, it would be unfair because they could completely undercut people on price. So the government brought in all of these rules and changes on the marketplaces to kind of force the marketplaces to enforce it. They've basically said to Amazon, " If someone doesn't have a VAT number that's overseas, and you're not enforcing that, then you're going to be responsible for it." So suddenly, Amazon now are like, " Okay." When you list something there as an overseas seller, they look at your address, they see you're in the US and they're like, " Okay, this person one, needs to have a VAT number, and two, they then collect the VAT at checkout." And it shouldn't even be going into your account now, Amazon hold it and pay it to HMRC. Which kind of made... For some businesses, might make it feel to them like, " Oh, I don't need to do anything because Amazon's doing it." But technically, you're still then supposed to register, so you have that number, and then submit your returns every quarter, so they have to be submitted every three months. And to basically say to HMRC, " This is how much money was collected by Amazon, and this is how much we collected elsewhere." Because you might have a shop or a store in the UK or something.
Ryan Cramer: Sure.
Joseph Cox: And effectively, we don't owe you anything.
Ryan Cramer: So registering for a number, that would be the first place to start. Is that easy to achieve? Is there lots of hoops to jump through? What's kind of the nature of getting a number?
Joseph Cox: I personally think it's straightforward, it's effectively filling out a form, right? They, for some reason, HMRC have made it more difficult for overseas businesses in that they actually ask... When you submit the forms, they will then come back and be like, " Whoa, whoa, whoa, are you sure you need a number? Are you sure?" And they'll send you a bunch of other questions and things like that. And actually, what we found, because it's a bit frustrating for us getting a lot of push backs that we managed to get hold of someone and they basically said, off the records, there was a big, big error. And basically, because of all the changes that they made, plus Brexit, they had all of these overseas businesses registering, which one, basically overloaded HMRC system, it was almost like a DDoS attack on their systems. They basically just got overloaded with work. And they'd also made a huge mistake in that they had communicated something wrong to Amazon. So Amazon pushed out this big blast to all of their sellers and got a load of people to try and register who didn't actually need to register. So then they started making it more difficult because for them, they didn't want to have to do the work if someone was deregistering. Obviously, for us, we were only registering people that were supposed to be registered and it was a bit frustrating. So long answer, it should be straightforward, but sometimes it's not. Short answer, sorry.
Ryan Cramer: Right. So in that regards, just being able to get your number, theoretically, it's a little bit easier. Is there a timeframe where people need to start registering, either before they're selling or before they want to list on marketplace like Amazon UK? What's kind of that timeline of, " Hey, I want to start selling in January of 2022, I want to make my preparations right now. When do I need to start prepping and getting all this in line before I hit the go button on Amazon UK?"
Joseph Cox: So in the UK, it usually takes two to four weeks to get the VAT number, and that's if you're an overseas business. For a UK business, like I said, they're sometimes a bit quicker, I can do it in a few days. What you sometimes find, it becomes this weird chicken egg situation, because if they come back to you, you try and register and then they say... One of the questionnaire questions is like, " Well, where do you sell?" And you say, " Well, I don't sell anywhere yet, because I'm waiting for the number, and I can't sell until I get the number." It sometimes depends on even the HMRC agent that you get to jump through those hoops. I would definitely recommend trying to do it as soon as you plan on selling in the UK. If you think to yourself, " It's going to be in a few months time," register straight away, because there's going to be no extra taxes you have to pay just for the unregistered. You might have a slightly... like an extra accounting fee for doing a blank return for one quarter. But getting it there first just means that when you then place the order for your goods, getting them into the country, and getting them into Amazon's warehouse will be so much more frictionless. Whereas if you imagine placing an order with... You've got your goods in China or wherever they are, you get them to the port, and suddenly they're asking for your VAT number for the clearance documents and actually, it kind of gets backlogs because you're waiting for the number and then you're getting charged with these extra fees. Yeah, just a headache. So I'd say as soon as you're thinking of doing it, just get it done.
Ryan Cramer: Right, crosstalk
Joseph Cox: You can always deregister if you don't... Sorry.
Ryan Cramer: I was going to say yeah, no, that makes sense, because that would be the first thing to get going and kind of greases the rest of the processes as you get going. Is there anything else in terms of numbers that actually are difficult to understand or might be a little bit different than the traditional selling on marketplace in the United States? What are those other numbers that people need to be aware of, because you mentioned paying VAT quarterly, which again, a lot of people are like, " Is that monthly? Is that quarterly?" Traditionally, what, that's at the end of the quarter, correct?
Joseph Cox: Yeah.
Ryan Cramer: crosstalk
Joseph Cox: So your VAT is usually done quarterly, you can do it monthly, but you have to apply for it. The quarters are different for everyone. So you could have a January quarter, I could have a February, someone else could have a March, and then it's quarterly thereafter. The submission of the return and the payment are due on the same day, and that's always five weeks after the quarter has ended. So let's say August has just ended, it would actually be... So five weeks after that would be in September, so 7th of October. And the reason it's five weeks is because that's one month from one week. So it's basically one month from one week, but we just say five weeks. So it's the following 7th of the month is when it has to be submitted and paid. Very confusing when you start the first time.
Ryan Cramer: We need a spreadsheet just to even talk about it right now crosstalk
Joseph Cox: Yeah, you need accountant. Just crosstalk
Ryan Cramer: Yeah, I was going to say...
Ryan Cramer: Yeah, I was going to say,
Ryan Cramer: Joseph, you're just selling me on why I need you and your services and your team. But in that regard, so knowing when it's due, I've actually heard this from sellers before, what if they don't pay it? You had alluded to it earlier. Some overseas companies will just not pay it. What are the ramifications for that? Is there a grace period? Is there a certain threshold? What's kind of those things that happen if you don't pay your VAT?
Joseph Cox: If you don't submit your return, and if you don't pay, that's kind of similar things, but essentially, they will chase it and they will send you some kind of strongly worded letters, first of all, but they're kind of... I've noticed they've been a bit quicker to act with overseas businesses, maybe because they've got less jurisdiction on them. But what happens is they actually just freeze your VAT number. There's an online system, effectively as a giant API for it, and they will say that your VAT number is no longer valid. And then this will trigger on to Amazon, because then Amazon are technically... They've got to enforce that. And Amazon, what you'll find, should and do, block your listings from selling until your VAT number becomes active again. So it's quite smart, because you then can't sell unless you reactivate your VAT number, because Amazon don't want to be liable for it. So yeah, the short answer is HMRC will just freeze your number and you won't get to sell. If you owe them some money and then closed your business, realistically there's not really going to be much I can see them doing, but for the effort of having to create businesses, create an Amazon account, you kind of... Yeah, I'm pretty sure they keep a database of people that have had VAT numbers like that which they cross check, which is why they kind of make all of the overseas sellers jump through more hoops when registering, because they don't want people to kind of abuse it.
Ryan Cramer: Maybe as we're kind of wrapping up the last couple minutes or so of the show and episode, what are some other things that sellers need to be aware of in terms of numbers? We call this having numbers make sense. Is there something that you wish, or you see that most sellers are not aware of, or they're not paying attention to pretty consistently and it's kind of a big deal? What would be that thing, if you had to put your thumb on it?
Joseph Cox: This will sound incredibly stupid to some people, but we see quite a lot of the time, some people actually don't even sell their products profitably, especially when they're selling on Amazon. So what they'll do is they'll see, okay, I'm listing the product for £ 10 or £ 12. Great, I'm going to get this £ 12 when I sell it." They forget that they've got to collect the VAT, so that's one sixth of the gross selling price. So one sixth of 12 is 2, they'll have an FBA fee, they'll have the seller fee, and you kind of end up with like £2. 50 left after all that. And if you paid £ 3 per product, you're losing 50p. Then the more you sell, the bigger your loss is. So it kind of sounds really silly, but actually, really make sure that before you place an order, unless you're doing it strategically, to make sure that your products are profitable. Because it can be incredibly painful and terrible for cash flow if you're selling your products at a loss. I've seen loads of people do it where... And they'll try and say to me, " I'm selling it so cheap so that I can go up in the Amazon listings." But it doesn't work, because when you get there, you then start increasing the price. And unless people are going to pay the increased price, you're kind of screwed. So I always think it's better to just sell it profitably, but maybe try and find another launch strategy. And we've not even spoken about including PPC and that kind of cost. Yeah, so you're just crosstalk
Ryan Cramer: Yeah, advertising or giveaways or coupons or anything like that. So yeah, you said a majority of people are doing that, is there a tool or resource that you recommend as kind of a starting point of, " Maybe you should look at this spreadsheet," or maybe like a breakdown calculator, if you will, of a input cost of goods, and this is the best way to kind of predicatively guess... Again, nothing's 100% foolproof. Is there a tool or someone they should talk to you about that before getting going?
Joseph Cox: inaudible. I've got a little spreadsheet that I've made for it. I'm sure there are going to be other calculators out there. I mean, maybe we should put one on our website. The main difference on it is going to be the FBA fee, because that's mainly based on weight and size. And obviously, the selling commission if you're in a slightly different category. To be honest, it is usually better to try and do it yourself unless you can pay someone who knows what they're doing to kind of look at each part of the cost to make sure that that number is right. Because even if you've got your products a centimeter or an inch too big, suddenly your costs... Amazon goes through the roof. So yeah, you just need to make sure that you factor all of that in and get it all completely correct.
Ryan Cramer: Of course, I mean, there's so many other things I would love to kind of just ask about, but I know we're already up on time. But just if people have questions or if they need to reach out to you, what are those ways and best to connect with you, you and your team, or you individually?
Joseph Cox: So if anyone wants to get in touch with us at Ecommerce Accountants, the website's ecommerceaccountant. co. uk, we've got a little web to lead form in the top right- hand corner. In terms of getting in touch with me personally, the best thing to do is to get in touch on LinkedIn. I do get bombarded with stuff sometimes, so if you are messaging me from here, let me know that you watched Ryan's show and then I'll be sure to actually make sure that I do know that you're a real person and not a bot, and I'll definitely respond. Yeah, and as you said at the beginning, I've got my little fledgling YouTube e- commerce show, youtube.com/ ecommerceJoe, where I kind of talk to people like yourself, Ryan, that are in the industry. It's been on the back burner for the last few months because I've spent so much time rebuilding all of our internal processes, and honestly, I'm so impressed the fact you've managed to get to 157 episodes.
Ryan Cramer: Me too, me too. I have crosstalk
Joseph Cox: Yeah, it's incredible, it's hard work.
Ryan Cramer: ... buthey.
Joseph Cox: It's so much hard work.
Ryan Cramer: Yeah, it's people like yourself that are willing to say yes to spend an hour of their time. Again, we talked about time, that's the one currency that... We're a currency company, technically. It's something that you don't get back. So applying it to something like this where you're educating people, we're always trying to build that knowledge base, if you will. People like yourself who are saying, " Yes, when do you want me?" That's why it's so successful, or at least I like to think it's successful. So I appreciate the kind words. And of course, working with people like yourself make it easy to refer people to and to talk out, when you guys do it the right way. People who've walked the walk, talk the talk, all that fun stuff, it makes doing this and playing around with the podcast arena, if you will, that more fun. So I appreciate your time and spending some of your day with us here at Crossover Commerce. So Joseph, again, thank you so much. And we've linked out to your YouTube channel and the website all in the comments in the show notes as well for those listening on the podcast, again, thank you so much for hopping on Crossover Commerce.
Joseph Cox: Brilliant. Thanks so much, Ryan. Bye everyone.
Ryan Cramer: No problem, we'll talk to you soon. Now a friend of the show, Joseph Cox of Ecommerce Accountants. Again, everyone else, thank you so much for hopping on and listening to Crossover Commerce. Again, this is episode 157 of my corner of the internet. It's a little dark today, so I apologize for the lighting. If I'm hiding in the background, it's not for lack of trying to figure out why it's so doomy and gloomy. Its first day of fall today, so therefore it's... Of course, it's going to drop 20 degrees here and be overcast. So that being said, it was a pleasure, obviously, talking with Joseph of Ecommerce Accountants. Again, if you have questions about expanding internationally, making the numbers work for you, it's so important. I think that's a fascinating takeaway to hear from him saying, people just aren't making sure that they're profitable at the end of the day, whether they know that the numbers are adding up to be less than what they're paying for. Maybe that's not a product that you want to go in business for or there's a reason for it. But you don't want it to be your first product to market and you're constantly pouring money into it when it's not going to be profitable, doesn't make math work for you. So let's not get caught in that that web, if you will. Obviously, connect with Joseph and his team over there at ecommerceaccountants. co. uk and then obviously, connect with him on LinkedIn. His profile will be in the comments, as well as the show notes as well. Thanks so much everyone for tuning in again. Another great episode tomorrow, just kind of a quick teaser of episode 158. We talked about him quickly in the show, we'll have back on, friend of the show, Ben Leonard of EcomBrokers. He's going to be talking about how to make your business valuable and sellable. Of course, that's what every person's talking about nowadays with their e- commerce brand, how to make everything more valuable and sellable. He has expertise in that. Then of course, on Friday, seller sessions with Danny McMillan is going to be on as well, kind of capping a fun week, if you will, about what to know about Amazon's A9 algorithm. That's also super exciting to talk with him, very successful podcast, but also a great event in of itself. That's going to be happening here in October. So we'll talk a little bit about that as well. But other than that, I'm Ryan Cramer. This is Crossover Commerce, episode 157. We'll catch you guys next time. Take care.
Ryan Cramer of Crossover Commerce talks with Joseph Cox of Ecommerce Accountants LLP one-on-one to discuss how to make sure your ecommerce numbers add up across the multiple marketplaces you sell on.
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