VAT for Amazon Sellers – What is VAT?

Updated on May 17, 2022

Contents

One of the most frequently asked issues we hear from Amazon FBA sellers is about VAT. As a result of this, VAT can be exceedingly difficult, as there are a number of different regulations that may apply to your firm based on a few very minor criteria. Our goal in this mini-series is to provide an overview of VAT and how it affects Amazon FBA sellers.

Your VAT certificate can be viewed on the internet.
Become familiar with the VAT MTD
The Amazon Sellers we work with come from all around the world. Get in contact with us right away if you have any questions or concerns about VAT for Amazon Sellers and you are an Amazon FBA Seller.

VAT for Drop Shippers

If you are a drop shipper, you will be subject to different VAT requirements. We want to produce an article about the VAT requirements that apply to drop shippers and link to it from this page in the future.

What is VAT?

What is VAT, you may ask, if you’re considering about it for Amazon Sellers? Both in the UK and across the EU, there is a tax known as VAT, or Value Added Tax.

A sales tax is one that levies on the actual selling price of a product rather than its true profit. This means that regardless of how much profit you actually make on the sale or whether you even make a profit at all, you are still liable for this fee.

For Amazon sellers, this implies that customers must be charged VAT based on the price they paid for the product, and not on the amount Amazon paid you (since Amazon will deduct their fees before paying your disbursement).

Our clients often spend nearly as much in VAT when selling a product on Amazon as they do in profit margin when we look at VAT for Amazon sellers!

When do I need to register for VAT?

Whether you’re a UK-based company or an international company, the answer to this question is complex.

VAT for Overseas Amazon FBA Sellers (non-UK, non-EU)

As soon as you want to start selling in the UK, you must register for VAT if your business is headquartered outside of the EU. Selling on Amazon in the UK, no matter how much money you make, necessitates quick VAT registration.

Until it meets the UK VAT threshold, a UK limited company owned by an out-of-country resident that sells on Amazon is treated as a UK firm and does not need to register for VAT.

VAT for Overseas Amazon FBA Sellers (non-UK, EU)

There are more complicated laws to follow if your company is headquartered in the European Union. Essentially, the criteria here is based on the size of your distance sales into the UK, first on where your goods are held (if your goods are stored at the Amazon UK FBA warehouse then you must register immediately).

Amazon Sellers from the United States, China, and Europe all keep their products at the UK FBA warehouse before shipping them to other EU countries, hence most non-UK FBA Sellers are required to register for VAT in the UK before shipping their goods to other EU countries.

In a future essay, we will discuss distance sales in further detail.

VAT for UK Amazon FBA Sellers

As long as your sales don’t above the VAT level, you don’t have to register for VAT in the United Kingdom.

Businesses in the United Kingdom can, however, opt to register for VAT even before they reach the threshold for taxation.

Should I voluntarily register for VAT?

We don’t suggest VAT registration for ecommerce businesses until you absolutely must. We’ll go into greater detail in a follow-up article.

What is the UK VAT threshold?

The current VAT threshold in the United Kingdom is £85,000 in sales over the course of a year.

When a UK firm anticipates to breach the VAT threshold in the next 30 days, it must register for VAT.

For businesses who apply to register for VAT late (say, within 2-4 weeks), they will not be penalised; but, they will have to pay VAT on any sales they make beyond that point in time, which is why it is important to register as soon as possible. Here, you may learn more about VAT fines.

How is VAT calculated?

When you file and submit your “VAT Return” each quarter, you calculate and declare the amount of VAT you owe to HMRC.

VAT is made up of two parts:

An importer or a supplier must pay an input tax when bringing products into the country.
Customers are charged the VAT they owe when they buy goods or services from you, which is known as Output Tax.
When you file your VAT return with HMRC, you are effectively calculating the difference between the input tax you paid on your purchases and the output tax you collected on your sales. You are responsible for the difference.

You will be required to pay HMRC the difference in input tax and output tax because FBA companies typically purchase goods that they subsequently resell for a profit (i.e. they buy low and sell high).

As a result, if you have paid more input tax than output, HMRC will owe you money back.

To illustrate this point, let’s take a look at the first three VAT quarters for an FBA Seller:

Quarter 1 — An Example of

Start by imagining that you’ve bought products outside of the UK and then imported them into the UK (where there is no VAT to pay) (which would have incurred import VAT). Consider, for the sake of argument, that in order to deliver the items to Amazon’s FBA facilities, you had to pay additional UK charges (which may have included input VAT).

Your initial VAT bill can be reduced by using all of these as instances of input tax.

In the first quarter, if you had no sales, you would have had no output tax to report to HMRC in your first return.

Even if you made no sales in the United Kingdom, you may still be required to file a VAT return.

The initial VAT return will be negative since you have no output tax (sales) and a number of input taxes (purchases) to reclaim. As a result, HMRC owes you a VAT refund for this example.

Please be aware that HMRC is likely to investigate VAT refund requests and that the penalties for fraud or even negligence are extremely severe.

Second Quarter – An Illustration

Q2 begins to bring in revenue (output tax) for your business, while you haven’t yet had to place a second order or incurred any further UK expenses.

Output taxes are now due and cannot be offset by input tax (expenses) because your expenses were all claimed in the previous quarter and no more have been incurred in the current quarter.

In this section, we’ll look at an example.

Sales are increasing at a steady pace in Q3, so you order additional products. Once they arrive in the UK, you’ll be hit with input VAT as well as a slew of extra fees.

The difference between the output tax (sales) and the input tax (purchases) on your return at the end of the quarter will be the amount you owe.

Contact us if these examples don’t make sense or if you have any questions about VAT for Amazon sellers.

How much (or what rate) is VAT in the UK?

Registration for VAT is required before you can charge or collect VAT in the UK. If you are an Amazon seller and wish to register for VAT, we can help you. Please contact us if you need assistance with completing the UK VAT registration process.

How much VAT do you need to charge to your UK customers?

VAT in the United Kingdom now stands at 20%. You must therefore charge an additional 20% of your sales price if you sell the majority of your products through Amazon.

For example, if you sell a product for £100 and VAT, you must charge your clients £120 (£100 + £20).

Including VAT in your Amazon sales price is mandatory if you’re selling straight to customers. You may not know how much VAT you should charge your consumers in the United Kingdom unless you read this blog post, which explains how Amazon FBA Sellers can compute their VAT from their sales price.

There are additional VAT rates (such as zero-rate and 5%), but these are rare and only apply to specific goods/services. We use the term “the majority of products” because this is the case. For the full list of VAT rates, see HMRC’s website here.

What if you sell to customers outside of the UK?

Things become a little more complicated from here. When it comes to charging VAT, where you send the goods from and where you send the goods to play a major role in the decision. This article assumes that your items are stored in the United Kingdom, and we’ll discuss VAT if your goods are stored outside the United Kingdom in a subsequent post.

You don’t have to charge VAT if you ship your goods from the UK to buyers outside the EU. Zero-rated sales are those that don’t charge sales tax.

If your consumers are located in the European Union and you are sending your products from the UK, this is referred to as a distance sale. Until you pass the distance sale barrier in the country you are selling to, you must charge UK VAT on all of your distance sales. You must register for VAT in that nation and begin charging the local VAT rate once you reach the distance sale threshold in that country (it is no longer recorded on your UK VAT return).

VAT Accountants for Amazon FBA

Tax experts for Amazon sellers: We are accountants that specialise in VAT. For questions about VAT for Amazon sellers or if you need help with FBA VAT, use our Instant Quote function.