Amazon Seller VAT : Complete Guide to UK VAT for Amazon

Complete guide to VAT on Amazon UK
We have seen first-hand the disastrous consequences of poor accounting and management of Amazon Seller VAT. Running an e-commerce business can be complicated, especially when it comes to accounting.

The more channels and payment processors you have, the more complex it becomes. For example, if you sell on Amazon, you receive a bi-weekly settlement, which includes various fees such as selling fees, FBA fees, and advertising costs, each with a different VAT treatment.

And this is just one marketplace! EBay, for instance, has daily settlements, and their fees attract UK VAT. And when you add other marketplaces, the process becomes even more complex.

On top of that, if you add your own website, the accounting data provided and the ease of integration with your accounting system will vary depending on the platform and payment processor you use.

Sell Internationally?

If you sell internationally, you’ll have revenue streams in different currencies and must comply with local VAT or Sales Tax legislation. Without the guidance of a specialist, it can be easy to make mistakes, which is why it’s crucial to seek expert advice when it comes to accounting and tax management for your e-commerce business.

We are e-commerce experts and our firm has made it our mission to learn everything to do with ecommerce to help our clients grow so they can focus on their business and sleep at night knowing their taxes and financials are in good hands.

We will go in-depth on the key concepts for VAT and Amazon sellers and then go through case studies of how we have helped people avoid VAT disasters.

An introduction to VAT

As an Amazon seller, it’s important to understand and comply with Value Added Tax (VAT) laws. VAT is a consumption tax that is added to the price of goods and services, and it’s your responsibility as a business owner to charge, collect, and remit the correct amount of VAT to the HMRC, remember, if you are VAT registered then you are working for the revenue service to correctly collect their VAT and keep it safe so you can pass this VAT once you have removed any VAT amounts that are owed to you – the VAT you collect is not yours to keep, you are looking after it until HMRC request it.

When you sell on Amazon, you will typically receive a fortnightly settlement from which various fees will be deducted, like selling fees and Fulfillment by Amazon (FBA) fees, and possibly advertising costs as well. These elements must be accounted for separately and have a different VAT treatment. Even your sales might not all be treated in the same way, as you may sell a mix of standard-rated and zero-rated products.

Value Added Tax (VAT) is a consumption tax that is applied to most goods and services in the European Union (EU) and many other countries around the world. VAT is typically added to the price of goods and services, and the rate of VAT varies depending on the country and the type of goods or services.

As an Amazon seller, it is important to understand how VAT works and how it may apply to your business. In general, if you sell physical goods through Amazon to customers within the EU, you will need to register for VAT if your annual sales exceed a certain threshold. Once you have registered for VAT, you will need to charge VAT on all of your sales within the EU and file VAT returns on a regular basis. Additionally, you will need to keep detailed records of all of your VAT transactions.

In the UK, the standard VAT registration threshold is £85,000 (increasing to £90,000 from 1st April 2024), and there are two main VAT schemes available for small businesses: the normal VAT scheme and the Flat Rate Scheme (FRS). The normal VAT scheme is the standard way of calculating and reporting VAT, while the FRS is a simplified VAT scheme that can be more beneficial for some small businesses.

The normal VAT scheme is the standard way of calculating and reporting VAT.

Under this scheme, you charge VAT on all of your sales and can claim back the VAT you have paid on your purchases. The amount of VAT you pay to HM Revenue & Customs (HMRC) is the difference between the VAT you have charged and the VAT you have reclaimed.

The Flat Rate Scheme, on the other hand, is a simplified VAT scheme that can be more beneficial for small businesses. Under this scheme, you charge VAT on your sales as normal (at the usual rate), but instead of claiming back the VAT you have paid on your purchases, you pay a flat rate percentage of your VAT-inclusive turnover to HMRC. The flat rate percentage varies depending on the nature of your business.

The FRS is intended for small business owners who have a low cost of goods and services, and therefore, the normal VAT scheme would be less beneficial for them, as they would end up paying more VAT than they would reclaim. However, if you have significant amount of purchases that you can claim back, the normal VAT scheme would be more beneficial.

Adding your VAT Number to Amazon

It’s important to ensure that your VAT information is up-to-date and correct. Amazon may ask for proof of VAT registration, so keep your registration certificate handy in case it is needed – this can be found in your online tax account on the HMRC website.

Once your VAT registration details are uploaded on Amazon, you will be able to charge VAT on your sales and file VAT returns through Amazon. Remember that it’s your responsibility as a business owner to ensure that you comply with the VAT laws and regulations and report and pay VAT correctly to avoid penalties and fines.

To calculate VAT on your Amazon sales, you first need to determine the correct VAT rates that apply to your products. The standard VAT rate in the UK is 20%, but some products may be eligible for a reduced VAT rate of 5% or zero-rated – VAT Rates On HMRC.

Once you know the VAT rate, you can calculate the VAT amount by multiplying the VAT rate by the price of the product. For example, if you are selling a product for £100 with a VAT rate of 20%, the VAT amount would be £20 (£100 + 20% or 100 x 1.2).

A bi-weekly settlement from Amazon includes various fees, such as selling fees, Fulfillment by Amazon (FBA) fees, and advertising costs. Each element must be accounted for separately, and each will have a different VAT treatment.

Once you are VAT registered, Amazon actually changes how they charge VAT on seller fees and FBA fees.
Amazon has reports that you can use to calculate VAT, but they are incredibly hard to use and confusing. That’s why Your Ecommerce Accountant developed software which takes this core data and creates detailed listing of sales, fees and VAT rates.

When VAT registered, you can reclaim the VAT on many goods and services that you use for your business. You would then record these on your VAT filings.

It is important to note that there are different rules and regulations when it comes to reclaiming VAT on purchases, and the process may differ depending on the type of goods and services you are purchasing, and other factors.

VAT on Imported Products or Stock

As a UK Amazon seller, you may be required to pay import VAT when you import goods into the United Kingdom. However, you can reclaim the import VAT you suffered by following these steps:

It is important to note that there are different rules and regulations when it comes to reclaiming VAT on imports, and the process may differ depending on the country of origin, type of goods, and other factors.

To qualify for postponed VAT, businesses must meet certain criteria, such as being registered for VAT, having an EORI (Economic Operator Registration and Identification) number, and having an approved postponed accounting arrangement in place.

Once a business is approved for postponed VAT, it can submit a postponed VAT declaration on the goods it imports. This declaration will include details of the imported goods, their value, and the VAT amount. The business will then account for this VAT on its VAT return instead of paying it at the point of import.

It is important to note that this scheme only applies to goods coming into the UK, and not services.

Filing your UK VAT Returns

To file your VAT returns using QuickBooks or Xero, you will need to first ensure that you have entered all of your sales and purchase transactions into the software. Once you have done this, you can then use the software to generate your VAT return. This will include all of the relevant information, such as the total VAT you have charged on your sales and the total VAT you have paid on your purchases.

Both QuickBooks and Xero are user-friendly software, that makes it easy to navigate through the process of preparing VAT returns. In addition to that, both software are cloud-based, which means you can access your accounts from anywhere and at any time. Moreover, with the integration of both software with various e-commerce platforms such as Amazon, it makes it easy to automatically import sales transactions, saving time and reducing the risk of errors.

One key advantage of using QuickBooks or Xero is that they both automatically calculate the VAT due based on the information you have entered. This means that you don’t have to calculate the VAT yourself, which can save you a lot of time and reduce the risk of errors.

Finally, both QuickBooks and Xero offer a range of features and tools to help you manage your VAT returns, such as automatic reminders to file your returns and the ability to submit your returns directly to HM Revenue & Customs (HMRC) via the software.

What to do next?

If you are worried about the implications of VAT, need to better understand UK VAT, or just want to clarify your position and get a quick assessment by one of our trained UK Accountants, then why not book a free consultation? It’s free and up to 30 minutes long, and we will answer any questions you have about your business, accounting, or information on how we can help your business.

Click here to Book A Free Consultation

Recommended articles:

Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with one of our Accountants, 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.

You Have Nothing to Lose & A Lot to Gain

Free 30 Minute Consultation

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.

You Have Nothing to Lose & A Lot to Gain
Share the Post:

Recent Posts

Book your Free Consultation or Quote for services

Want to speak to an e-commerce accountant for free, get 30 minutes of expert advice on accounting for your e-commerce business.
Not have any questions? If you just want a quote then book a meeting, we can discuss what you need and give you a quote.

Get more information on becoming an affiliate.

Please get in touch

Wait! Before you go...

We don’t want you to miss out on your FREE consultation with one of our team.
Ask any accounting questions you might have. We’re usually about to give you some quick fixes or answer those questions that have been bugging you.
 
We’ve even advised some Amazon sellers on how to save Thousands of pounds on their Amazon fees.