VAT Accountants guide for Ecommerce Amazon FBA Sellers

Vat is a specialist area, the Vat accountants guide will provide you with an insight to deal some of the issues your Commerce business.

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Many businesses online are choosing the FBA Amazon plan. If you have an FBA (fulfilment by Amazon) Amazon business, then you will be well aware that once you hit a certain threshold you will need to register for VAT in the UK. As accountants we understand the varied rules (and yes it can be very complicated for those who have little or no understanding!). We have issued a mini-series of guides to help you through this minefield. This will help you understand the basics in terms you can understand as well as how VAT will apply to you as an Amazon FBA business.

We have been working with businesses on Amazon for a number of years and our clients are all over the world. Our expert knowledge of the VAT system, both in the UK and abroad, will help you wherever you are located. So, if you need a little helping hand or just need to understand a certain aspect of the complicated VAT system, we are here to help.

How Does VAT Apply to Drop Shipping?

There are different VAT rules for drop shipping businesses and they will be covered by a separate article as they are outside the scope of this article.

What is VAT when you are trading as an Amazon FBA Seller?

VAT (value added tax) is a sales tax that is applied in the EU and the UK. The tax is applied to certain commercial goods and services and there are different bands of tax. Not everything is subject to VAT, there are certain exemptions, however, trawling through the long list of what is and what is not applicable can be time consuming and difficult. Therefore, if you are an Amazon seller and you are above the threshold, you will need to charge your customer VAT. One of the issues with VAT as an Amazon FBA seller, is that you have to pay VAT on the price you actually sold an item (or service) for, and not just on the profit you make from the item. This can mean that if you only make a very small profit on an item (once you have paid your fees to bought Amazon for fulfilment), it can be swallowed up in VAT fees, as this tax applies to the actual sales price to the customer and not the profit made.

Do I Have To Register my Ecommerce business for VAT?

If you are in the UK, then you do not need to register for VAT until your turnover for taxable goods reaches £85,000 (in 2020). If you are not UK based, but you are an Amazon FBA business selling in the UK then you need to register for VAT immediately, regardless of turnover. The exception to that rule is if you actually own a UK Limited company, as that then follows the rules of UK based companies in terms of registering for VAT when you reach the threshold of £85,000.

VAT Rules For Non-UK or EU Amazon FBA Sellers (Overseas Businesses)

This is not as straight forward as it would seem. Basically, if you are an overseas business that is based in the EU, but you use the Amazon UK FBA warehouse to store your goods, then you will need to register for VAT immediately. However, if you store your goods in your own EU country rather than the UK warehouse, you will not have to register immediately for VAT but will have to pay tax on the value of sales to the UK. Many FBA Amazon sellers are located overseas in China, USA, etc., and they choose to store their goods in the UK warehouse for distribution to EU countries. This means that the majority of non-UK FBA businesses will need to register for VAT immediately in the UK, but can wait until their sales reach a certain threshold in other EU countries, before registering for paying Vat there. As this is a complicated ara, we will cover it in more depth in another separate post.

VAT Rules For UK Amazon FBA Sellers

UK based businesses do not need to register for VAT until the turnover reaches £85,000.

Voluntary Registration for VAT

If you are a UK based FBA Amazon seller then you can register for VAT on a voluntary basis, before your sales reach £85,000, however, it is not recommended you do this. This important aspect will be outlined in another article.

What is the UK VAT threshold in 2022?

The VAT threshold is £85,000 worth of annual sales in 2022. If your business looks like it will reach or cross this threshold in a 12-month period, then you will have 30 days to register, otherwise the business may be penalised. The moment the business has sales of £85,000 will be the moment VAT is payable, so even if you register a little late the VAT amount will be backdated to the applicable time. Read this article to learn more about VAT penalties.

How To Calculate VAT for your business?

Every business needs to complete a tax return every year detailing profit and loss. VAT returns are completed quarterly to ensure you do not get behind on payments and into a situation where you are unable to pay. The VAT return is sent to the HMRC.

VAT takes account of the following:

Input tax– this is the amount of VAT you are charged by your supplier or wholesalers, or it van be tax charged for importing goods into the country.

Output tax– this is the amount of VAT your customers pay you for each sale or service.

Rebates

It is possible to get a rebate on any VAT that you have overpaid. This can happen when you pay too much output tax (ie when you have made a loss on a product). Usually, FBA Amazon sellers buy goods at a low price and sell for a higher price to make a profit, so you will pay less input tax, meaning you owe money to HMRC. It is important to check your business accounts regularly to ensure you are selling at a profit.

GM Professional accountants have offices located in London, Birmingham and Manchester.