This article is a (very) beginner friendly introduction to print on demand taxes.
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Tax is money which the government takes from individuals or businesses so it can fund public spending. This is paid to and regulated by tax collecting authorities. In the UK the authority is called the HMRC and the US it’s called the IRS. There are different types of tax depending on the type of transaction, but this article will cover taxes relevant to POD businesses.
Self-employment Tax
In the UK, the threshold for reporting your self employment earnings is £1000 profit in a tax year (2021/22). This threshold is different for different countries e.g. it’s only $400 in the US. This is not £1000 per year per separate businesses, this is in total for you, e.g. if you’re made £600 profit from your print on demand business this year and £401 in total from another business e.g. social media, you still earned over the self-reporting threshold and you should register as a sole trader. If you’re not making over £1000 in a given tax year in the UK you don’t have to worry about self-employment tax.
After you register, you’ll have to submit your tax return forms each year. You can do THIS online by filling out a self assessment. You might not actually have to pay any tax, this is just making them aware of your income and registering yourself as a business.
If you are making over the threshold amount and you’ve never paid taxes before, you need a national insurance number. If you’re a UK citizen you should get sent one before your 16th birthday, but if not you may need to apply.
Tax Write-offs
You can pretty much write off anything which contributes directly towards your business as spending e.g. research tools. You can see a full list of things considered as expenses here.
Income Tax Brackets
The US and UK use progressive tax systems, which means people are taxed in brackets depending on their income. See the current UK tax brackets here.
National Insurance
On top of income tax you also have to pay national insurance in the UK.
Self-employment Tax Calculator
Use this calculator to estimate your taxes if you are self employed in the UK. These are the key tax dates – don’t miss your deadlines!
VAT (Value Added Tax)
VAT is a type of consumer tax. It applies to countries in the European Union. You might see it being called GST, JCT, SST, QST in some other countries. This is tax that’s charged on every sale you make to and from EU countries, and the percentage varies between countries. Therefore, this varies based on location so where you are as well as where you’re selling to. VAT is charged at every point in the supply chain – at fulfilment, shipping and purchase.
Some marketplaces like Etsy, Ebay and Amazon calculate sales tax or VAT for you at checkout based on your location and your customer’s location, which is why you might see your product listed as more expensive than you priced it.
You may still need to set up taxation and submit a sales tax form if you’re selling on your own website. E.g. Shopify has a calculator that creates a report, but you still have to pay the tax yourself.
If you’re using a commission-based POD platform like Redbubble, Merch by Amazon or Teepublic, you don’t need to worry about sales tax or VAT at all. This is actually because it’s not you selling the shirt. I.e. they are actually paying their own sales tax – you’re just collecting a commission. The only tax you’re may need to consider is the self employment tax if you’re earning over the threshold.
VAT Registration
In the UK once your turnover reaches £85,000 a year in any 12 month period you should register your business for VAT. You’ll get a VAT number and you should find a place to enter this on your marketplace/platform in the settings. You should also submit your VAT ID to your fulfilment provider e.g. Printful. From then on your fulfilment service and marketplace will stop charging you VAT, but you’ll be responsible for accounting and paying the VAT yourself.
Merch By Amazon Tax Withholdings
Law requires companies such as Amazon to withhold 30% of any non-US sellers royalties. This means if you’re a non-US MBA seller, up to 30% of your royalties may be withheld when you first start selling on there.
The problem is that this number isn’t 30% for all countries, and in fact for some countries such as the UK your income isn’t supposed to be withheld at all. Depending on your country you can claim back this withholding, but you need an EIN number (employer identification number) which you can get by calling the IRS.
This article by Merch Informer guides you through the process step-by-step. If you are an Amazon seller outside the US, it’s important to check if your income is being withheld and deal with it as soon as possible.
