Hey there, ecommerce entrepreneurs! Buckle up, because we’ve got some important updates on the Amazon VAT changes that kicked in on August 1, 2024. Let’s dive into what’s happened, how it might affect your business, and what steps you need to take to ensure VAT compliance with these new local VAT rules.
Understanding VAT Basics
What is VAT?
VAT, or Value-Added Tax, is a consumption tax that’s applied to the value added at each stage of the production and distribution process. Essentially, it’s an indirect tax that the end-consumer ultimately pays, but businesses in the supply chain are responsible for collecting and managing it. Here’s how it works: at every step, from manufacturing to retail, VAT is charged on the sale price of goods and services. The amount of VAT paid to the government is the difference between the VAT collected on sales and the VAT paid on purchases. This ensures that the tax burden is spread across the supply chain, but the final consumer bears the cost.
VAT on Amazon Seller Fees: What’s Changed?
Remember when we told you Amazon was going to start charging VAT on UK seller fee invoices? Well, they’ve done it – and then some. So, does Amazon charge VAT on seller fees? Here’s the scoop on how VAT on Amazon FBA and seller fees works now:
Amazon is now adding 20% UK VAT to all Amazon seller fees and FBA fees for UK sellers.
Surprisingly, they’re applying this 20% VAT rate to EU sales as well, even for UK companies.
The billing is now coming from Amazon’s UK branch, regardless of where you’re selling (UK, Germany, France, Italy, Spain, Netherlands, Poland, Belgium, or Sweden).
Let’s break this down and see what it means for your VAT obligations and how VAT works in this new scenario.
Below is the latest invoice type Amazon are sending out to all UK sellers who sell on the Amazon UK market.
If You’re UK VAT Registered: A Silver Lining
For those of you with a UK VAT registration number, here’s the good news: while your Amazon payouts might look a bit lighter at first due to VAT on Amazon fees, you can reclaim this VAT paid on your VAT returns. Here’s how the VAT treatment changes your VAT obligations:
You sell an item for £120 on Amazon UK.
Amazon charges you £40 in selling fees (including the new 20% VAT).
You pay £20 in sales VAT to HMRC, just like before.
But now, you can reclaim that extra £6.67 VAT charged on the Amazon fees.
The bottom line? Your profit stays the same at £66.67. The only change is in how you handle your UK VAT return. Make sure your accountant knows to reclaim VAT on these fees during the normal VAT return process as most do not understand Amazon and many will not have read about the new local vat rules change and its impact on UK vat.
Not VAT Registered? Here’s What You Need to Know
If you’re not VAT registered or you’re on the flat rate scheme, this change in VAT treatment might sting a bit more than we initially thought. Why? Because that 20% VAT rate is now being applied to your EU sales as well, and you need to collect VAT on these sales. Let’s look at the numbers:
Before: Selling an item for £100 on Amazon would leave you with £66.67 after £33.33 in seller fees.
Now: The same £100 sale leaves you with £60 after £40 in fees (including VAT collected).
That’s a 6.67% hit to your margin. On £60,000 in annual sales, that’s £4,020 less in your pocket. Ouch! This might make you consider whether you need to register for VAT, especially if you’re approaching the VAT threshold.
Local VAT Rules Across Europe
Amazon are charging UK VAT to UK registered businesses even if they sell in EU markets, so make sure to claim this on your VAT return, if your accountant does not know to do this make sure to tell them as many will not know about these rules or understand international tax. See an example below of an EU invoice.
European VAT Rates
When it comes to VAT rates, Europe is a patchwork of different percentages. Each country sets its own standard, reduced, and zero rates. For instance, the standard VAT rate in the UK is 20%, while Germany has a slightly lower rate at 19%, and Spain sits at 21%. Some countries also offer special rates for certain products or services. For example, you might find a reduced rate for food items or a zero rate for children’s clothing. Understanding these variations is crucial for businesses operating across multiple European markets, as it affects how much VAT you need to charge and collect.
Complying with Local VAT Rules
Navigating local VAT rules is a critical part of running a business in Europe. This means you need to register for VAT in each country where you operate, ensuring you charge the correct VAT rate on your sales and pay VAT on your purchases. Accurate record-keeping of all VAT transactions is essential, as you’ll need to file regular VAT returns with the relevant tax authorities. Failure to comply with these local VAT rules can lead to penalties, fines, and even damage to your business’s reputation. Staying on top of your VAT obligations not only keeps you compliant but also helps you avoid any unexpected financial hits.
What about UK VAT on US Amazon Seller fees
Reviewing invoices from the US amazon platform shows that they are still not charged VAT on Amazon FBA and seller fees. This is great for those selling in the US market. That means you do not need to update your VAT returns to include VAT on these fees. This change only impacts UK VAT on invoices from UK amazon and Amazon services Europe.
What About the Flat Rate Scheme?
If you’re on the flat rate scheme for VAT purposes, it’s time to pull out your calculator. Here’s a quick example of how VAT calculations work under the new system:
Before: On a £120 sale, you’d pay £9 in VAT (at 7.5%) and £33.33 in Amazon selling fees, leaving you with £77.67.
Now: You’re still paying £9 in VAT, but Amazon fees have jumped to £40, leaving you with £71.
That’s a £6.67 drop in profit per £120 sale. It might be time to reassess whether the flat rate scheme is still your best bet for VAT purposes.
What Do You Need to Do Now?
1. If you’re VAT registered: Breathe easy. Just make sure you or your tax advisor are reclaiming VAT on all Amazon seller and FBA fees – including those from EU sales – when filing VAT returns.
2. If you’re not VAT registered: It’s time for a product review. Go through your SKU list on Seller Central and make sure each item is still profitable after paying VAT. You might need to adjust your purchase price or consider discontinuing low-margin products.
3. If you’re on the flat rate scheme: Run the numbers. Calculate whether the 7.5% flat rate is still more beneficial than the standard VAT scheme, given these new fee structures and VAT rates. Here is a link to an article telling you how to find out which scheme is better for you: FRS vs VAT
4. For everyone: Keep a close eye on your August invoices in Seller Central, especially if you’re selling in multiple countries like Germany, France, Italy, Spain, or the Netherlands. Check if Amazon EU is charging UK VAT on these fees too.
Remember, these changes apply to all your Amazon invoices from August 1, 2024, onwards. If you haven’t already, you can still use our guide to reclaim VAT on charges before this date from Amazon Services Europe S.à r.l. – but don’t wait too long!
The Bigger Picture
While this change might seem like a headache, it’s important to look at the broader context of VAT regulations. For VAT-registered businesses, this is mostly a cash flow adjustment in your VAT reporting. For others, it’s a reminder of the importance of staying agile in the ever-changing world of ecommerce and VAT laws.
These changes underscore why it’s crucial to have a solid grasp on your numbers and understand how VAT works. Knowing your exact margins, understanding your VAT obligations, and being able to quickly adapt to new fee structures are all key skills for success in this industry.
What’s Next?
If you’re feeling overwhelmed or unsure about how these changes affect your specific situation, don’t hesitate to reach out for tax advice. Every business is unique, and sometimes you need a tailored approach to navigate these waters and ensure VAT compliance.
Please note that if you were being charged VAT on seller fees and FBA fees you can reclaim all the pre August 2024 VAT back from Amazon. You can do this even without a VAT registration number. So if you want to learn how to do this with a step by step guide please see this article on removing UK VAT from seller fees for Pre-August 2024.
Remember, staying informed and adaptable is key in the world of ecommerce. Keep an eye on your numbers, be ready to adjust your strategies, and don’t be afraid to seek expert advice when you need it. Whether you’re dealing with import VAT, figuring out how much VAT to charge, or trying to understand how VAT collection works across multiple countries, we’re here to help.
Got questions about Amazon VAT, referral fees, or how to reclaim VAT? Comment on the video and we will reply.
