The Basics of VAT for Amazon sellers [2024 Update] 📊📈

For UK Amazon sellers, navigating the world of VAT can be a constant source of stress and confusion. With ever-changing rules and cross-border complexities, one wrong step can lead to hefty fines, lost profits, or even business shutdowns. Mismanaging VAT can cripple your cash flow and cause unnecessary headaches with HMRC.

This guide gives you a comprehensive road map that covers all your questions about VAT, from VAT registration essentials to avoiding costly mistakes when filing returns. If you’re tired of second-guessing every step of the process, you’ll find answers here.

What is VAT?

VAT, or value-added tax, is a type of consumption tax paid by end users on products and services. UK Amazon sellers and other online businesses that hold inventory in a number of places or sell to EU countries must be aware of their VAT liability to avoid penalties. In this guide, we'll talk about UK VAT registration, filing a VAT return, VAT rates in different countries, and how an Amazon seller accounting expert would approach VAT.

How does VAT work in the UK?

VAT-registered businesses charge VAT on sales and pay VAT on purchases. They report this information to tax authorities.

Per VAT rules, the company will pay VAT to their suppliers as part of the purchase price and charge VAT to customers as part of their selling price. At regular intervals, businesses will calculate the VAT collected and paid in each country where they are registered and pass the information to the applicable tax authority. The amount of VAT owed is either refunded or paid.

VAT compliance is fairly simple for companies that only trade in one country, but for Amazon sellers that sell in multiple countries, it can become complicated. Each jurisdiction has different VAT obligations, rules, filing frequencies and distance selling thresholds.

VAT Amazon update August 2024

As of August 1, 2024, Amazon has applied VAT to various fees for UK businesses selling on Amazon’s European marketplaces, including seller fees, some FBA fees, and some storage fees at a 20% VAT rate.

If your business is established in countries in which AEU has a branch (UK, Germany, France, Italy, Spain, Netherlands, Poland, Belgium, and Sweden) then you are affected by these changes. Some non-VAT registered sellers may still be exempt, but it’s not yet clear how this will work.  

Link My Books has updated its systems to accommodate these changes, making sure that your reconciliation is always accurate.

Here’s a table for easier reference:

Storage Fees

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*GB to GB refers to orders shipped from GB warehouses to customers located in GB.

How Link My Books can help with these new changes and save you money?

Amazon sellers have to manage more than just their local and International VAT Obligations. Amazon fees can be complicated to calculate. Brexit has only made things more complicated. 

Standard accounting software isn't designed to calculate VAT or file multiple returns for different countries, which is why most companies use third-party EU VAT calculation partners to assist. 

For the best Amazon accounting software, you should consider tools that are specifically tailored to the unique needs of Amazon sellers.

Link My Books will simplify your Amazon accounting, so you can focus on what you do best: selling amazing products easily.

Link My Books simplifies your VAT by automating the process of reconciling Amazon fees. It automatically calculates these fees, ensuring accurate tax reporting and saving you time on manual data entry. 

VAT Product Grouping helps you simplify your VAT calculations for different product types. It automatically groups products based on their VAT rates and applies the correct tax treatment to each sale. This guarantees that you remain compliant with VAT regulations and prevents costly mistakes. 

If you want your accounting to run on autopilot, try out Link My Books, it takes only a few minutes to set up and you can use it for 14 days, free of charge.

You can connect to Amazon directly through Xero or QuickBooks integrations. ‍

Here’s how it works:

1. Connect your Amazon account to Xero or QuickBooks via Link My Books.

2. With each Amazon payout, Link My Books verifies all transactions, ensuring that every order is treated correctly for tax purposes.

     3. Link My Books then creates a detailed summary invoice, itemizing the payout into sales,              refunds, and fees, and assigning them to the proper accounts with the correct tax rates.

4. Every entry matches effortlessly with the bank deposit in a single click.

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How to register for VAT

To register for VAT in the UK and receive your VAT registration number, you'll need your national insurance number, incorporation details, details of the associated business, and business bank account details.

You can register for VAT via HMRC's online services in the UK.

VAT charges in different countries

Collecting VAT from every company that sells goods internationally would be impossible to administer, but it would be unfair to local companies if governments didn't collect tax from foreign traders.

To make it more manageable for companies that do business within EU countries, governments have put distance selling thresholds in place. When a business sells more than the threshold in any EU country, they are required to register for VAT locally and file VAT returns accordingly.

UK Amazon sellers who sell their goods in Germany should pay VAT in the UK only, but when they hit the German threshold of €100,000 in a tax year, they must register for VAT in Germany and pay and collect VAT at the local VAT rate (19%).

EU countries (and the UK) are required to set minimum VAT rates and up to a maximum of two reduced rates. Member EU countries also offer a 0% VAT rate on some amenities, including intra-community and international transport.

Businesses that store inventory in Amazon fulfilment centres outside the UK mostly likely need to register for VAT in those countries. If you’re dealing with different currencies, it's try out the Amazon currency converter to be able to understand and manage your transactions more easily. 

Different VAT scenarios for Amazon sellers

Amazon sellers face various VAT scenarios depending on their business structure and the products they sell. Here's a breakdown of common VAT situations:

1. Purchases Crossing the UK-EU Border

When goods move between the UK and EU, sellers must account for import VAT and customs duties. Ensuring proper reporting is crucial to avoid fines and delays.

2. Not VAT Registered

Sellers who are not VAT registered don’t charge VAT, but they face limitations—especially regarding the ability to reclaim VAT on purchases. This can lead to increased costs if not managed carefully.

3. Flat Rate Scheme

For those on the Flat Rate Scheme, VAT is calculated as a fixed percentage of gross turnover. While this simplifies compliance, it limits the ability to reclaim VAT on expenses, which may impact overall profitability.

4. Zero-Rated Products

Some goods are zero-rated for VAT, meaning no VAT is charged to the customer. However, these transactions still need to be reported in VAT returns, adding complexity to bookkeeping.

5. Reduced and Standard-Rated Products

Most goods will fall under either reduced rates (5%) or standard VAT rates (20%), depending on the product category. Correctly classifying these transactions is key to avoiding overpaying or underpaying VAT.

Does Amazon charge VAT on seller fees?

Amazon now charges VAT on seller fees, including referral fees and monthly account charges, based on the local VAT rate applicable to your region.

UK sellers will pay 20% VAT on Amazon Seller Fees for all orders, FBA Fees for domestic orders (shipped from GB to the customer in GB) and Amazon Storage Fees for the Amazon.co.uk marketplace.

Does Amazon charge VAT on advertising?

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Amazon does charge VAT on Amazon.co.uk for sponsored ads but reverse charge for other EU marketplaces. 

When you advertise on Amazon, you might notice additional charges on your invoice beyond your regular ad campaign costs. These extra fees are known as “regulatory advertising fees.”

Regulatory Advertising Fees

• These come into play when your ads are shown in specific countries or when advertisers from certain countries purchase ads.
• The reason behind these fees is often local regulations, such as Digital Services Taxes.

Indirect tax on sponsored Advertising Fees

Some countries have introduced rules for taxing digital services (like advertising) based on where they’re received. Amazon follows these rules and may charge and collect VAT/GST (Value Added Tax or Goods and Services Tax) on digital advertising services.

Here’s when ESS (Electronically Supplied Services) VAT/GST applies to sponsored advertising fees:

• If an advertiser hasn’t provided Amazon with a valid VAT/GST registration number.
• If the advertiser is established in a country that has ESS or remote services rules.
• It’s important to note that even if an advertiser provides a VAT/GST ID, Amazon might still collect tax in certain cases.

So, it’s a good idea for advertisers to register their tax ID in their Amazon account to ensure accurate invoicing.

What to do with a mixture of VAT-rated products

Approximately 15-20% of Amazon sellers encounter difficulties when dealing with a mix of VAT-rated products, such as standard, zero, and reduced rates. This complexity often leads to overpayment of VAT. The key to handling this issue is to accurately separate out these different VAT rates.

• Detailed Product Categorization: Sellers should categorize their inventory precisely, identifying which VAT rate applies to each product. This categorization helps in applying the correct VAT rate at the point of sale.
• Use of VAT Software: Implementing VAT software that can differentiate between various VAT rates automatically can be a game-changer. This software should be capable of applying the appropriate VAT rate based on the product type and destination of sale.
• Regular Audits and Checks: Conducting regular audits and checks of VAT calculations is essential to ensure accuracy. This practice helps in identifying and rectifying any discrepancies in VAT application, thus avoiding overpayment.

Over and under-paying VAT for Amazon sellers

Over or under-paying VAT is a common issue for Amazon sellers, often stemming from misunderstandings or misapplications of VAT rates and regulations. The main reasons for these discrepancies include:

• Lack of Understanding of VAT Laws: Misinterpretation or lack of knowledge about VAT laws, especially in different jurisdictions, can lead to errors in VAT calculations.
• Incorrect VAT Rate Application: Applying incorrect VAT rates to products, either by overestimating or underestimating the applicable rate, is a frequent cause of incorrect VAT payments.
• Failure to Update VAT Practices: Not keeping up-to-date with changes in VAT laws and thresholds can result in either over or under-paying VAT.

Link My Books ensures accurate reporting, helping you avoid this costly mistake. Our UK-based accountants are on hand to assist you with setup and ongoing questions, ensuring you stay compliant even as VAT regulations evolve.

Other VAT considerations for Amazon sellers

In addition to VAT on seller fees and advertising, Amazon sellers must also navigate customs duty, import VAT, invoicing requirements, and VAT obligations for non-EU-based sellers. Here’s a breakdown of each aspect:

Customs duty for Amazon sellers

Customs duty applies to goods imported into the UK or EU from non-EU countries. It’s a tax charged on the value of the goods, including shipping costs and insurance. For Amazon sellers, customs duties must be considered when importing inventory, as it directly impacts the cost of goods sold (COGS).

• Who pays customs duty: Generally, the importer is responsible. If you're fulfilling goods into the UK or EU from non-EU locations, you must pay customs duty based on the product type and value.
• Impact on pricing: Customs duties can vary depending on the classification of your products. It's crucial to understand these costs to price your products competitively and maintain profitability.

Import VAT

When importing goods into the UK or EU, import VAT is payable on the total value of the goods, including any customs duties.

• Reclaiming import VAT: If you're VAT registered, you can usually reclaim import VAT through your VAT return. However, it’s important to ensure that the VAT is properly recorded to avoid overpayment or compliance issues.
• Postponed VAT accounting (UK): Since Brexit, the UK has introduced postponed VAT accounting, allowing VAT-registered businesses to account for import VAT on their VAT return rather than paying it upfront at the time of importation. This improves cash flow as sellers don’t need to physically pay the VAT before reclaiming it.

Link My Books helps automate this process, ensuring that import VAT is properly accounted for and can be reclaimed.

Invoicing for VAT

As an Amazon seller, issuing VAT-compliant invoices is critical for both B2B and B2C transactions, especially if you are VAT-registered.

• Invoice requirements: A VAT invoice should include details like your VAT registration number, the VAT rate applied, and the total VAT amount. For B2B customers, a full VAT invoice is required, while a simplified VAT invoice can be issued for B2C transactions under certain thresholds.
• Amazon VAT calculation services: Amazon provides a VAT Calculation Service that automatically generates VAT invoices for your orders, which is particularly useful for sellers dealing with high transaction volumes. You can integrate this service with your accounting software via Link My Books, ensuring seamless VAT tracking.

VAT for non-EU-based selling partners

Amazon sellers outside the EU, such as those in the US or Asia, may still have VAT obligations if they sell to customers in the UK or EU. Here’s what non-EU sellers need to know:

• Distance Selling Rules: Non-EU sellers fulfilling goods to UK/EU customers must register for VAT if their sales exceed the distance selling threshold (e.g., €10,000 for the EU). This requires them to charge VAT on sales and file VAT returns in the respective countries.
• VAT for Fulfillment by Amazon (FBA): Non-EU sellers using FBA warehouses in the UK or EU must also be aware of VAT obligations, as storing goods in a local warehouse may trigger a need to register for VAT in that country.
• One-Stop Shop (OSS): For sellers outside the EU selling goods under €150 to EU customers, the One-Stop Shop (OSS) scheme simplifies VAT reporting. Instead of registering for VAT in each EU country, sellers can report VAT through a single return in one member state.

Amazon VAT FAQ 

1. What is the additional VAT report on Amazon?

Additional VAT Report (AVR) is a report created by Amazon that allows you to perform the following operations:

1. Review and fix any Amazon or Non-Amazon transactions that could be in an error or may require additional information

2. Add any non-Amazon transactions which are done in any other channel besides Amazon, and include them as part of your VAT report for that period and jurisdiction to which you subscribed for VAT Services.

During the filing cycle window, which happens during the 4th and 7th of every month, while accessing the “File Your VAT” page, you will have the option to download the AVR file. 

The file will contain a template showing transactions in error which will require your action to fix, and will also enable you to add transactions that must be included for the VAT filings of your subscribed countries. 

Follow below the list of transactions that must be either reviewed or added via this template:

• Non-Amazon channel sales
• Non-Amazon channel credits, refunds and returns
• EU cross-border stock movement
• For Amazon sales and credits where the buyer is a business - Additional data is required
• Purchases
• For Multi-Channel Fulfilments - Additional data is required

You do not need to include these transactions:

• Amazon channel sales and refunds some text
  • If you do include them, they will be ignored and tagged as a 'Not Included' transaction

• Transactions which are not relevant for VAT reporting in your subscribed countriessome text
  • If you do include them, they will be ignored and tagged as a 'Not Included' transaction

2. Where do I get a VAT invoice from Amazon?

Amazon provides VAT invoices for sellers on certain fees and charges, such as:

• Monthly subscription fees
• Referral fees
• Advertising fees

To obtain your VAT invoice:

1. Login to Amazon Seller Central.
2. Navigate to Reports > Tax Document Library.
3. Select VAT Invoices under the document type.
4. Download your VAT invoice for the relevant period.

If you’ve subscribed to Amazon's VAT Calculation Service, Amazon will automatically generate VAT invoices for your sales to VAT-registered customers.

3. Do I need a VAT number before submitting my first listing?

You don’t necessarily need a VAT number before submitting your first listing on Amazon. However, whether you need to register for VAT depends on the country you’re selling in and your sales volume:

• UK Sellers: If your taxable turnover exceeds the VAT registration threshold (currently £85,000 annually), you must register for VAT. If you're below this threshold, you can sell without a VAT number, but you won't be able to reclaim VAT on expenses.
• EU Sellers: The same applies if your turnover exceeds the local VAT registration threshold.
• Non-EU Sellers: If you're fulfilling products to UK/EU customers, you may need to register for VAT if your sales exceed the distance selling threshold (€10,000 in the EU). Registering for VAT before hitting the threshold may be beneficial to reclaim VAT on business expenses.

That said, it’s highly recommended to obtain your VAT number as early as possible if you plan on scaling your sales, particularly if you're using Fulfillment by Amazon (FBA), as storing goods in the UK or EU may trigger VAT registration requirements.

Save time and money on your Amazon VAT fees 

If you want to experience the benefits of the Link My Books VAT management tool first-hand. Sign up for our free trial today and see how our solution can transform your Amazon business. 

You'll not only save time but also be sure that you're paying the right amount of VAT, avoiding unnecessary overpayments.

DISCLAIMER

We are not Tax Advisors and so our guidance and suggestions on the application of tax rules cannot be construed as tax advice. We highly recommend that you seek advice from qualified accountants for tax compliance.