Amazon Changes to UK VAT Charges on Seller Fees

Amazon Charges VAT on UK Invoices from August 2024: Rule Changes

Breaking news in the past couple of days! Amazon is now going to start charging VAT on UK seller fee invoices from the 1st of August 2024. This means that businesses will need to ensure VAT compliance with the new rules starting from 1st August 2024. All your Amazon invoices, including your Amazon seller fees and Amazon FBA fees, will be subject to UK VAT at 20%.

What are the New Amazon VAT Rules

Below is a link to the official release statement from Amazon and what they had to say about how new Local VAT rules apply to their invoices: “If your business is established in countries in which AEU has a branch (UK, Germany, France, Italy, Spain, Netherlands, Poland, Belgium, and Sweden), you will be invoiced by your local AEU branch from August 1, 2024. As a result, local VAT rules will be applied to Amazon fees, where required by law. Contact your tax advisor for further guidance on this.” Here is a link to the Amazon update:Change in selling services provider entity and seller tax treatment FAQ

Up until now Amazon has been billing sellers from a Luxemburg Entity, Amazon Services Europe S.à r.l. (ASE). This meant that all invoices sent to businesses from the UK would have no VAT on them. This was great for UK businesses because even if you were not VAT registered, you would not need to pay VAT on Amazon Seller fees and FBA fees.

Under the updated rules, businesses will have new VAT obligations.

Can you Still Reclaim VAT on Amazon Fees?

For the past few years, we’ve had a campaign that told Amazon sellers in the UK how to remove VAT from their Amazon invoices even if they were not VAT registered.

Amazon would remove VAT from their invoices going forward and refund the VAT charged to your business even if you had no VAT registration number. This benefitted businesses, which could potentially receive thousands of pounds of refunds from Amazon VAT they had paid when not required to.

The good news is you can still use our guide to do this on all Amazon charges before 1 August 2024. Businesses can still use the VAT refund process for charges before this date. To find out how to refund these fees click here: Click here for our guide on reclaiming VAT on invoices before 1 August 2024

We’re unsure how long this will be able to be done successfully, so ensure you don’t delay, it could be worth thousands of pounds to your business.

However, it seems that Amazon may have realised that dealing with all these refund cases was not worth it for their seller central team. They have now changed the legal entity which bills their fees.

Amazon will now bill from Amazon EU S.à r.l. (AEU) rather than Amazon Services Europe S.à r.l. (ASE).

They will be billing from a UK branch and therefore they will be able to collect VAT on their invoices for seller fees and FBA fees.

What does this mean for your Amazon Business?

If you are established in the UK and have a UK business address, then Amazon will start collecting UK VAT on your Amazon selling fees. How this change in VAT treatment impacts your business will depend on whether you have a UK VAT registration. The broader VAT implications for businesses include potential changes in pricing strategies and compliance requirements. So let’s look into both scenarios:

I am a UK VAT Registered Business

If you are VAT registered and have a UK VAT number, Amazon will start charging UK VAT on Amazon fees. Therefore you can expect your payouts to be lower as your fees will have an increase of 20% as a result of Amazon adding UK VAT.

However, you can reclaim this on your UK VAT return when you go through your normal VAT return process. Therefore, this presents you with a short-term cashflow challenge. Over the first three months of this change, you will have slightly less cash than you would normally have, but this will be offset when you submit your UK VAT returns.

Therefore in the long run this should not impact the overall UK VAT amount you pay as you can reclaim the VAT Amazon charge you for their selling services.

The only downside is a short term and minor cash flow hit.

Overall impact : No significant Impact. No action required.

What if you are on the Flat Rate Scheme (FRS)?

Before these rule changes, online sellers could be using the Flat Rate Scheme, which is one type of VAT scheme. This scheme means you only pay 7.5% on your sales but cannot reclaim VAT paid to suppliers.

This normally worked really well for those selling on Amazon UK because Amazon would remove VAT charge from their invoices as soon as you gave them a UK VAT number. Therefore, you were getting the best of both worlds.

So how does this new VAT application change impact you?

If you use the flat rate scheme then the FRS stops you recovering VAT from supplier invoices. Amazon will start billing all UK customers VAT on their seller fees and FBA fees and you will not be able to reclaim VAT on these. Therefore you can expect your margins to be hit slightly by this change.

The impact will be 2-6% off your bottom line. Therefore it may be worth reviewing the product pricing of some of the items you sell on the Amazon platform.

You should review if the FRS suits your VAT purposes as you may pay a lower amount of VAT on your Amazon Sales but the increase in VAT on fees which normally represents 30% of your selling cost may mean the normal, Standard VAT scheme is better for you and paying normal VAT rates may be more beneficial to your business.

Overall Impact: A hit in margin by 2-6%. You should review if the FRS is still suitable for you or if you should move to the normal VAT scheme.

I am a Non UK VAT Registered Business

As you are not filing VAT returns and you are established in the UK then you will be hit by this Amazon VAT increase.

Before this change you could avoid Amazon VAT by raising a case (you can still reclaim the VAT on pre 1 August 2024 Amazon VAT invoices).

However Amazon will be collecting VAT on all their invoices from 1 August 2024. So if you were not paying VAT before, then you will have start paying VAT from 1 August 2024.

The VAT registration process involves applying for a VAT number and submitting regular VAT returns to HMRC. Businesses that meet the VAT threshold must register for VAT to comply with UK tax regulations.

Therefore your cost of Amazon fees will increase by 20% and impact your margin by 2-6%. In most cases a VAT registration will not benefit you as you will have to start collecting VAT and applying VAT rates to your products. This would make you less profitable as you would have to pay VAT on your Amazon Sales. Which normally erodes your margin by 10-15%!

So if you are not VAT registered you will have to accept that you will have a slightly lower margin due to the paid VAT on Seller fees.

You should review the pricing of your products to maintain your margins.

Remember, the rule of thumb is if you are not registered for VAT then you should be aiming at a margin of 20-30% as a VAT registration would push these margins down to 15 to 25%.

Overall Impact: A hit in Margin of 2-6%, but in most cases, a VAT registration will not be beneficial, so you will have to review your margins to ensure profitability.

What if you sell in to the EU market?

You may still be billed by the UK entity even when making EU sales. Therefore you should check these invoice at the end of August to determine if Amazon are charging you UK VAT.

Additionally, businesses selling in the EU market must adhere to VAT compliance requirements to ensure they meet all necessary tax obligations.

What should you do now?

For those who are established as a UK business and selling on Amazon, at the end of August you should go to your seller Central account and review your VAT documentation in the Tax documents section.

You should then look at all the documents which are VAT invoices relating to Amazon fees and check if they are charging you VAT. There is still a chance they will apply reverse charge VAT to these invoices and therefore this will have little impact on your margins.

For those selling on the EU Seller Central platform, you may be charged UK VAT on these fees too, so you should review these tax documents on seller central as well.

We will be reviewing how Amazon applies this new VAT rate and we will post an update here at the end of August 2024 to provide clarity.

If you have any worries or concerns about how this will impact your business or if you think you may need to change from the FRS, then you should contact an Accountant. To book a free call to discuss these changes (and any other Amazon/Ecommerce queries) with one of our Amazon Accounting Experts then click here.

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Why not grab a Free 30 Minute Consultation with an Accountant, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

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