How to Calculate VAT on Amazon Sales in 2025

If you're selling on Amazon internationally, VAT calculation is one of your biggest compliance challenges. Between Amazon fees, cross-border sales, and changing VAT rules, it’s easy to make mistakes, leading to penalties, overpayments, or missed deductions.

Many sellers still rely on manual spreadsheets or guesswork when accounting for VAT. The problem? This is slow, error-prone, and costing you money.

In this guide, we’ll show you how to calculate VAT on Amazon sales the right way - fast, accurately, and with minimal effort using Link My Books.

Where Most Sellers Go Wrong with Amazon VAT Calculation

The biggest mistake Amazon sellers make? Thinking Amazon fully handles VAT for them.

While Amazon may collect VAT on some sales via their VAT Calculation Service (VCS), you’re still responsible for tracking, reporting, and paying VAT correctly.

Other Common VAT Mistakes:

• Forgetting VAT on Amazon fees: Amazon charges VAT on seller fees, and many sellers miss this.
• Misclassifying products into the wrong VAT category: Not all products are taxed at 20%!
• Ignoring cross-border VAT rules: Selling across EU borders? Different rates apply.
• Not using an automated VAT tracking system: Manual tracking leads to costly errors.

Let’s walk through the correct way to calculate VAT on your Amazon sales.

How to Calculate VAT on Amazon Sales

1. Connect Amazon to Xero or QuickBooks via Link My Books
2. Categorize Your Amazon Sales by VAT Product Group
3. Separate International Sales and Marketplace VAT Collection
4. Account for VAT on Amazon Fees & Fulfillment Costs
5. Generate Accurate VAT Reports for HMRC

The fastest and most accurate way to calculate VAT on Amazon sales is by connecting Amazon to your accounting software via Link My Books.

Here’s the step-by-step process:

Step #1: Connect Amazon to Xero or QuickBooks via Link My Books

• Sign up for a Link My Books account.
• Link your Amazon Seller Central account.
• Connect your Xero or QuickBooks accounting software.

This integration automatically categorizes your Amazon transactions and VAT, removing manual work.

Step #2: Categorize Your Amazon Sales by VAT Product Group

Link My Books automatically groups your sales into VAT categories, but here’s how it works:

• Zero-rated goods (0% VAT): Books, children’s clothing, some food items.
• Reduced VAT items (5%): Certain energy-saving products.
• Standard VAT items (20%): Most physical goods.

Using VAT Product Grouping ensures that every sale is categorized correctly. Learn more here.

Step #3: Separate International Sales and Marketplace VAT Collection

Link My Books automatically separates your UK sales from your exports and even sales where Amazon is responsible for the collection and remittance of VAT to both HMRC and other EU tax authorities too. 

Step #4: Account for VAT on Amazon Fees & Fulfillment Costs

• Amazon charges VAT on seller fees, FBA fees, and advertising costs.
• Link My Books identifies and categorizes these fees correctly in your accounting software.
• Link My Books also treats Amazon fees pre/post August 2024 differently since Amazon changed their legal entity used to invoice UK sellers for fees then.

Many sellers forget to reclaim VAT on Amazon fees - this alone can save you money!

Step #5: Generate Accurate VAT Reports for HMRC

• Link My Books syncs all your Amazon data to Xero or QuickBooks and attaches a full HMRC Audit file to each entry
• Submit your VAT return via Xero or QuickBooks, ensuring compliance with HMRC.

✅ With this system in place, you’ll never have to manually track VAT again.

🚀 Get started today with a free trial and simplify your VAT calculations forever!

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How Link My Books Makes Calculating VAT on Amazon Sales Simple

Calculating VAT on Amazon sales can be time-consuming and complex. Between different tax rates, Amazon fees, and international transactions, it’s easy to make mistakes that lead to overpayments or compliance issues. Link My Books automates the entire process, ensuring every Amazon transaction is accurately categorized, reconciled, and audit-ready.

Automatic VAT Categorization and Compliance

VAT, GST, and sales tax rules vary depending on the country, making compliance a challenge for sellers operating across multiple regions. Link My Books automatically applies the correct tax rates to each transaction, whether domestic or international. It separates VAT from your Amazon sales revenue, ensuring accurate reporting, and accounts for VAT on Amazon fees and fulfillment costs so you don’t miss reclaimable tax.

Effortless Amazon Payout Reconciliation

Manually tracking and reconciling Amazon payouts can be a frustrating and error-prone process. Amazon payment reconciliation software like Link My Books eliminates this by automatically matching Amazon transactions to your bank deposits. It sorts sales, refunds, fees, and taxes into the correct categories in Xero or QuickBooks, ensuring your financial records are accurate without the need for spreadsheets or manual adjustments.

Clear Profitability Insights Across Sales Channels

For sellers using multiple platforms, such as Amazon, eBay, Shopify, or Etsy, tracking profitability across different marketplaces can be challenging. Link My Books organizes financial data by sales channel, making it easy to compare revenue, expenses, and profit margins across platforms. This allows you to see which channels are driving the most profit, allocate resources more effectively, and make data-driven decisions to scale your business.

Automated Cost of Goods Sold (COGS) Tracking

Understanding your true profit margins requires accurate COGS tracking. Link My Books automatically assigns inventory costs to the right expense accounts, ensuring your financial reports reflect your actual profitability. With this level of accuracy, you can make better-informed pricing and inventory decisions.

Multi-Currency VAT Reconciliation Made Simple

If you sell internationally, handling multiple currencies can add another layer of complexity to VAT calculations. Link My Books automatically converts all transactions into your base currency using the correct exchange rates, ensuring that VAT reporting remains accurate across different regions. This eliminates the need for manual currency conversions and helps maintain consistency in your financial records.

Quick Setup and Scalable for Growth

Setting up Link My Books is straightforward, even if you don’t have an accounting background. A guided setup wizard walks you through the process, and free one-on-one onboarding support ensures everything is configured correctly. 

Whether you're processing a handful of orders or managing thousands of transactions daily, Link My Books scales with your business, keeping your financial records accurate as you grow.

If you’re looking for a faster, more accurate way to handle VAT on Amazon sales, Link My Books is the solution. 

Get started today with a free trial - no credit card required. 🚀

What is the Current Rate of VAT in the UK?

As of 2025, the UK VAT system follows a tiered structure with different rates depending on the type of goods or services being sold. The standard VAT rate remains at 20%, but certain items qualify for reduced or zero rates.

• Standard Rate (20%): Applies to most goods and services, including electronics, clothing, and professional services.
• Reduced Rate (5%): Applies to specific items such as children's car seats, home energy (e.g., electricity and gas), and certain energy-saving materials.
• Zero Rate (0%): Applies to essential goods like books, newspapers, most food items (excluding prepared food), children's clothing, and medical supplies.
• VAT-Exempt Items: Some services and financial products, including education, health services, and insurance, are VAT-exempt.
• Outside the Scope of VAT: Transactions such as statutory fees (e.g., road tax) and certain international sales may fall outside the VAT system altogether.

VAT Registration Threshold in 2025

If you're a business selling in the UK, you must register for VAT if your taxable turnover exceeds £90,000 in a 12-month period. This threshold increased from £85,000 in April 2024.

However, you can voluntarily register for VAT even if you’re below the threshold, which may be beneficial if you want to reclaim VAT on business expenses.

VAT on International and Online Sales

For Amazon and other online sellers, VAT rules vary depending on whether you sell within the UK, to EU customers, or globally:

• Selling within the UK: Standard VAT rates apply based on product type.
• Selling to the EU: The EU’s One Stop Shop (OSS) scheme applies for cross-border sales, meaning you may need to charge VAT at the customer’s local rate.
• Selling outside the UK and EU: Most exports are zero-rated, but VAT registration in other countries may be required depending on sales volume.

Staying VAT Compliant

To stay compliant with UK VAT regulations, businesses must:
✅ Charge the correct VAT rate on sales
✅ Submit VAT returns on time (usually quarterly) via Making Tax Digital (MTD) compliant software
✅ Keep accurate records of VAT invoices, expenses, and transactions

How Does VAT Apply to Amazon Sellers in the UK?

Amazon sellers face unique VAT challenges, especially when selling across multiple regions. Whether you sell within the UK, to the EU, or globally, VAT compliance depends on your registration status, where your customers are located, and whether Amazon is handling VAT for you.

VAT on Amazon UK Sales

If you’re a UK-based Amazon seller, you must:

• Charge 20% VAT on standard-rated products if you're VAT-registered.
• Include VAT in your selling price if selling to UK consumers.
• Keep records of all VAT-charged sales for tax reporting.

If you haven’t registered for VAT yet, you don’t need to charge VAT unless your annual taxable turnover exceeds the £90,000 VAT registration threshold.

Selling to EU Customers: The VAT One Stop Shop (OSS) Scheme

If you sell to customers in the EU, VAT rules depend on your sales volume:

• If your total EU sales are below €10,000 per year, you can continue charging UK VAT (if registered) and paying it to HMRC.
• If your EU sales exceed €10,000, you must charge VAT based on the customer's country and report it using the One Stop Shop (OSS) scheme.

OSS simplifies EU VAT compliance, allowing you to file a single VAT return for all EU sales rather than registering in each country individually.

Amazon’s VAT Calculation Service (VCS) – Does Amazon Handle VAT for You?

Many sellers assume Amazon handles VAT, but that’s only partially true. Amazon's VAT Calculation Service (VCS) can help automate VAT collection and invoicing, but sellers remain responsible for VAT reporting and compliance.

If you enroll in VCS, Amazon will:

• Automatically calculate VAT on eligible B2B and B2C sales.
• Issue VAT invoices on your behalf.
• Display VAT-inclusive pricing on your listings.

However, Amazon does NOT submit VAT returns for you. You still need to:

• Ensure VAT is recorded correctly in your accounting software.
• Report and pay VAT to HMRC or the relevant tax authority.

VAT on Amazon FBA (Fulfillment by Amazon) Sales

If you use Amazon FBA, VAT can get even more complex, especially if your stock is stored in multiple countries.

• If Amazon stores your products in an EU country, you may need to register for VAT there.
• If you sell through the Pan-European FBA program, you may be required to register for VAT in multiple EU countries.
• If your products are stored only in UK warehouses, standard UK VAT rules apply.

Selling Outside the UK and EU – Do You Need to Charge VAT?

For customers outside the UK and EU, most exports are zero-rated for VAT. However, the buyer may need to pay import VAT and customs duties upon delivery. Some marketplaces, including Amazon, collect and remit VAT on sales to certain countries, so it's essential to check how VAT is handled in each region you sell to.

FAQ on Amazon Seller VAT Calculation

Do I need to pay VAT on Amazon fees and fulfillment costs if I’m not VAT registered?

No, if you’re not VAT registered, you won’t reclaim VAT on Amazon fees. However, Amazon may still charge VAT on certain fees, which you’ll need to factor into your costs.

Does my Amazon payout include VAT, or do I need to account for it separately?

Yes. Amazon only deducts VAT due to tax authorities if they are responsible for collecting and remitting the VAT. In most cases, you, the merchant, are responsible for remitting the VAT to tax authorities so it’s included in the payout to you so you can pass it on.

How can I correctly track and report VAT from my Amazon sales to HMRC?

The best way is to connect Amazon to Xero or QuickBooks via Link My Books. It automatically categorizes VAT on sales, fees, and refunds, making reporting simple and accurate.

How do I calculate VAT on my Amazon sales, and should I include it in my selling price?

To calculate VAT, divide your gross selling price by 1.2 (for 20% VAT). If selling to UK customers, VAT should be included in your price unless selling to VAT-registered businesses, who may prefer VAT-exclusive pricing.

What do I need to know about Amazon VAT if it’s flat rate or non-standard rate goods?

If using the Flat Rate Scheme (FRS), you pay a lower VAT rate to HMRC but can’t reclaim VAT on most expenses. For non-standard rate goods, check HMRC guidelines to apply the correct VAT rate (e.g., 5% or 0% for some products).

Simplify Amazon VAT with Link My Books

Managing VAT manually across different marketplaces and countries can be overwhelming. Link My Books automates VAT tracking and reconciliation, ensuring:
✅ Accurate VAT categorization for Amazon sales, refunds, and fees.
✅ Seamless integration with Xero & QuickBooks for easy VAT reporting.
✅ Compliance with UK, EU, and international VAT regulations.

Staying VAT-compliant as an Amazon seller doesn’t have to be complicated. With the right automation, you can focus on growing your business while ensuring your VAT is handled correctly.

👉 Try Link My Books Free and simplify your Amazon VAT calculations now!

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