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 should approach VAT.
What is VAT?
Consumers who purchase goods or services have to pay VAT. In the US, this is known as sales tax. Unlike income tax, which is subtracted from your income, VAT is added to the final price paid and collected by the various companies that make up the supply chain.
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.
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 charged 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.
For example, 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.
Does Amazon charge VAT on seller fees?
Amazon charges VAT on seller fees, which means there will be an amount of Amazon seller VAT owing on your referral fees and monthly account charges (charged per the local VAT rate). If, however, you've provided Amazon with a VAT number, you will not be charged Amazon VAT. Instead, you need to declare the VAT paid on your tax return through a reverse charge mechanism.
The reverse charge mechanism is a means of simplifying VAT for businesses. Instead of paying VAT and claiming it back via your UK VAT return, the reverse charge mechanism removes the need to pay the VAT to begin with.
How Link My Books Can Help
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. If you don't stay on top of these fees and rates, you may end up overpaying or underpaying taxes.
Xero and QuickBooks aren'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. We've designed Link My Books to work in conjunction with your third-party provider while ensuring that your Amazon fees and UK VAT return are correct at all times.
Link My Books will also connect your accounting software to a host of selling platforms, including eBay and Etsy, so that compliance and booking are simple, fast and seamless - no matter how many marketplaces you use.
Link My Books will simplify Amazon accounting, so you can focus on what you do best: selling amazing products easily.