VAT (Value Added Tax) is a tax added to the sales price of most products and managing VAT for Amazon FBA sellers can get very complex. Each country has a different VAT system and they all work out and collect VAT in different ways.
And good advice is hard to find. Even professional accountants aren’t always much help. Smaller firms know only about their own country and the larger international firms cost a fortune.
In this article, we will cover everything I and my team know about VAT for Amazon FBA sellers. Then at the end, we will lay out some simple VAT strategies for Amazon sellers of different sizes. Here is a sneak peek at the decision tree I use for my businesses. I will explain my reasoning in detail throughout the guide:
Warning: This guide is based off my experience as a long-time Amazon FBA seller. I am by no means an expert so be sure to consult an accountant before copying any of my tactics.
This is a beast of a guide at 10,000 words so use it as reference material. So bookmark it now for and jump around to the points most relevant to you!
- 1 The Very Basics
- 2 When To Register For VAT As An Amazon Seller
- 2.1 Creating A Strategy On VAT For Amazon FBA Sellers
- 2.2 Amazon FBA Options – Single Country, Multi-Country, Pan-Europe
- 2.3 Example 1: Seller With No VAT Registration
- 2.4 Example 2: seller with a UK VAT registration
- 2.5 Example 3: Seller with a UK VAT registration and one or more EU VAT registration
- 2.6 Example 4: Seller who is part of the Amazon Pan EU programme
- 2.7 Registering for VAT and Filing Returns
- 3 How To Record, File & Pay VAT For Amazon FBA Sellers
- 4 Upcoming Changes To VAT In The UK And EU
- 5 Glossary
- 6 Conclusion
How This Guide Was Created
I am not an accountant. I was in the first wave of Amazon FBA businesses. A time when it was almost unheard of for a one-person business to need to worry about international VAT requirements. My accountant had no idea so I worked it out myself.
That was seven years ago and each year I have learned a bit more about VAT for Amazon FBA sellers. Now I run multiple FBA businesses without an accountant. This article is drawn up for internal use by my team and I am sharing it publicly. It is not meant to be followed exactly. Please consult your accountant.
The Very Basics
An Introduction To VAT
What is VAT?
VAT (Value Added Tax) is a consumption tax paid by the end user of a product.
Most countries with Amazon FBA have some sort of similar consumption tax. USA has “sales tax”. New Zealand and Australia have GST (goods and services tax). And Europe has VAT. For this guide we are just going to talk about Europe and the UK. For this rest of this guide, when I talk about Europe I will be including the UK.
VAT is included in the price that the retail buyer sees. So if you sell a laptop for £240 on Amazon, this price will include any VAT that you will then need to hand over to the government.
So while officially VAT is paid by the end buyer, the reality is VAT is collected by the businesses in the supply chain.
Here is a simple example.
Who Collects VAT?
Businesses are responsible for charging VAT on sales, paying VAT on purchases and reporting this information to their tax collections agency:
- When a company buys goods or services, they generally pay VAT to their supplier.
- When a company sells goods or services, they generally charge VAT to their customer as part of the selling price.
- At regular intervals throughout the year (usually monthly or quarterly), businesses calculate the net amount of VAT that they have collected or paid in each country where they are registered.
- This information is passed onto the local tax agency (e.g: in the UK, that is HMRC). Then the amount of VAT owing is either paid or refunded.
You will need to register for VAT in your businesses home country if you sell more than their VAT threshold. For UK businesses that threshold is currently (June 2020) £85,000 in sales in a 12-month period. At this point, you enter the above chain and need to start collecting, recording and paying VAT.
In the above example, Person 2 is a company in the UK and has received £40 of VAT on products sold. They have also paid out £20 of VAT on purchases made. Therefore they owe HMRC £20 in VAT.
While this is a relatively simple calculation it can get quite complicated.
Not all businesses need to pay VAT. Not all goods have the same VAT rate. Different countries have different VAT rates. And international transfers of goods have their own VAT requirements.
VAT registration thresholds
When you’re just getting started, you might decide to avoid registering for VAT for as long as possible.
If your business is located in the country where you are registering for VAT, then you may be able to sell products without needing to register until you reach a certain level of turnover.
For example, in the UK, the threshold is £85,000 (May 2020). This means that registering for VAT is optional until you reach £85,000 within a 12-month period.
Generally life is much easier and more profitable if you are not VAT registered:
For more information about VAT registration thresholds in each country, check out this table provided by the European Commission.
How Does VAT Work For International Sales?
Where, how and if you collect VAT internationally is decided by a complex web of international tax treaties.
For this article we are only going to talk about sales on Amazon FBA Europe.
Nexus refers to a physical or economic presence that a business has in a state or country. When you have nexus you are required to register for VAT.
You will be considered to have nexus in a foreign European country if you:
- Store stock in that country.
- Have staff in that country.
If you have nexus in the country you will need to register for VAT. Most relevant to Amazon sellers: If Amazon stores your stock in that country you will need to register for VAT.
If you do not have Nexus in that country you may still need to register for VAT if you are over the distance selling threshold.
If you sell to a foreign country while not having a Nexus there, you are considered to be distance selling. For instance, if you sell in Amazon Germany but store and ship your products from Amazon FBA UK then you are distance selling.
eCommerce has changed the way that we buy and sell. It’s easier than ever before for people to trade with companies that are located in other countries. And has become much harder for tax agencies to collect VAT on the money spent in their economy.
- If they try and collect VAT from every company that sells to people in their country, it would be impossible to administer.
- However if they didn’t collect VAT from foreign suppliers then local companies would be disadvantaged. And less tax would be collected for public spending.
To ensure that collecting VAT is practically manageable for companies governments have distance selling thresholds in place.
When your business sells more than the threshold in any particular EU country, you are required to register locally for VAT and start filing returns.
For example: Germany’s annual distance selling threshold is €100,000. Therefore, if you are located in another European country and selling to customers in Germany:
- You are covered by your local VAT rules until you sell €100,000 to customers in Germany within a tax year.
- When your sales exceed €100,000 to customers in Germany, or when you expect your sales to exceed €100,000 in the next 30 days, you need to register for German VAT and file returns on a regular basis.
- Before you meet the distance selling threshold, you charge VAT at your local rate (e.g: 20% in the UK). And pay it to your local tax agency.
- Once you have registered for VAT in the destination country, you need to collect VAT at the destination country’s rate (i.e: 19% in Germany) and pay it to their tax agency.
Distance selling thresholds by country
There is a full list of current thresholds at Avalara. But here are the distance selling thresholds most important for compliance with VAT on Amazon (current as of May 2020).
|Country||Distance Selling Threshold|
|Czech Republic||CZK 1,140,000|
VAT Rates by Country
VAT is not the same for all products and can be different in each country. For your product it is worth looking up how much VAT you will need to collect in each country.
The following table provides a brief overview of the VAT rates by country:[table “” not found /]
For most products sold on Amazon, you will need to pay the standard VAT rate. However, some items fit into a special category that pays a lower rate (such as children’s car seats or diapers in the UK). So it is worth researching the VAT status of your products in each marketplace that you sell in.
This comprehensive guide by Avalara provides an up to date list of the products that are eligible for reduced rates in each European country.
Pros & Cons of being VAT Registered
Most people try and hold off registering as long as possible because it can be expensive and is quite a lot of work. I estimate that each country you are registered in costs about £1,000 in fess and costs. But that isn’t always the case so here are some pros and cons to weigh up.
- Being VAT registered can make you look larger and more established than you are. Helping you to be taken seriously by larger companies.
- Once you are registered for VAT in a jurisdiction, you don’t need to worry about going over the registration threshold. Instead, you can focus on growing your business instead of minimizing tax.
- You can claim back the VAT paid on tax deductible expenses. If your business has more expenses than income you will receive tax refunds.
- Once you are registered for VAT, you need to file returns on a regular basis.
- You might decide to use an app like Quaderno, or an accountant to help manage your VAT filings. This becomes an extra ongoing expense for your business.
- If you try to do it yourself and get it wrong (or pay your bill late) there are penalty fees and interest.
- Being VAT compliant does make your business more complex, and is another responsibility to manage.
How does VAT work when selling to customers in other countries? This depends upon your business situation, and the type of products or services you are selling.
If you are supplying end consumers in other EU countries, don’t have a physical presence (i.e: no inventory or offices) and you haven’t passed the distance selling threshold for the destination country, you simply collect VAT at your local tax rate (if you are registered) and pay it to your local collections agency.
When you pass the distance selling threshold for a region or begin storing inventory in a country, you are then required to register for VAT in that jurisdiction. You charge VAT at the destination country’s rate (when you do business with customers in that country) and pay the taxes collected to the tax department in the destination country.
If you are registered for VAT in the UK or EU, but you are exporting products to customers outside of the EU, taxes are charged at the customer’s end. In other words, you don’t charge any VAT in your country, but when it’s received by customs in the destination country there may be a charge to the customer.
If you are not located in the UK or EU (or registered for VAT), and are selling products to consumers in the UK or EU, you don’t charge any VAT as it is paid on the buyer’s end. For example, if you sold a product from your Amazon USA account to a customer in France, the VAT would be charged on arrival.
It’s important to note that this is a simplified explanation to demonstrate how VAT for Amazon FBA sellers works normally. Your individual situation might be different, so make sure to ask your accountant for professional advice based on your specific circumstances.
Frequently Asked Questions About VAT For Amazon FBA SellersWill VAT reduce my profit margin?
If you pay VAT on your all your product expenses then it will not reduce your profit margin.
Here are a couple of scenarios to consider:
- Your business is based in the UK (or another EU country), and registered for VAT. In this instance, you will charge VAT on products sold and pay VAT on all purchases. The total amount of VAT that you pay is the difference between your income and expenses.
- Your business is based in the UK (or another EU country), but you haven’t passed the VAT registration threshold (so you aren’t registered for VAT yet). If you are in this position, you’ll need to pay VAT on your expenses, but will not be able to charge VAT on your sales.
Either way, your profit margin should remain the same if VAT is factored into your income and expenses. For example: you sell a product for £10, and it cost you £5 to purchase.
- If you’re not registered for VAT, your income is £10 and your cost of goods sold is £5. Therefore, your profit margin is 50% (£5/£10).
- If you are registered for VAT, you’ll need to pay £1.67 (£10 – £10/1.2) in VAT, which makes your net income £8.33. However, you are also able to claim £0.83 (£5 – £5/1.2) VAT from the cost of your purchase, making your cost of goods sold £4.17. Therefore, your profit margin is 50% (£4.17/£8.33).
Your profit margin will not change. But you will make 20% less profit. In number 1 you make £5. In number 2 you make £4.16.
If you don’t pay VAT on all your product expenses then your margin will get smaller.
Yes, Amazon does charge VAT on seller fees. If you are not VAT registered it is added to the fees.
However, if you have provided Amazon with a VAT number (and they have verified it), you will not be charged VAT. Instead, you’ll be required to declare the expenses on your tax returns through the reverse charge mechanism.
The reverse charge mechanism is a way to handle VAT in business to business transactions that helps to prevent fraud, and simplifies the process of paying VAT tax.
When the buyer is a business and also the consumer (i.e: they aren’t on-selling the product or service being transacted), any VAT will eventually be refunded as a claimable expense.
So instead of paying the VAT then claiming it back later, the reverse charge mechanism removes the need to pay the VAT in the first place.
“In most transactions, suppliers act as a tax middleman, collecting tax from the buyer and passing it onto the government. The reverse-charge mechanism is designed to cut out this step.”
With the reverse charge mechanism, the responsibility for paying VAT shifts from the seller to the buyer. In practise, it looks something like this:
- When the transaction takes place, the buyer provides the seller with their VAT number.
- The seller verifies that the VAT number is valid and that they are a legitimate trading entity.
- Once verified, the transaction takes place as normal but there is no VAT charged or paid.
- In the buyer’s VAT return, they declare their purchase (input VAT) and the supplier’s sale (output VAT), which essentially cancels out each other from a cash payments point of view.
For more information about the reverse charge mechanism, and how to use it in your business, check out this guide.
For most online sellers, you’ll need to keep your VAT records for 6 years. However, there are some circumstances where you need to hold onto records for a longer time period.
If you have signed up to the MOSS (mini one stop shop) system, you’ll need to hold onto VAT records for 10 years. If your business also owns land and buildings, you might need to keep VAT records for 20 years.
However, the general rule is that holding onto VAT records for 6 years is suitable. “Unless fraud is suspected, the HMRC can only go back four years to issue assessments, penalties and interest.”
While such a period of time might seem like forever, there is an easier way to stay on top of your books – use automation and apps to keep your records accurate and tidy as you go.
A2X is the accounting app I recommend that connects your Amazon Seller Central account with Xero or Quickbooks Online (cloud accounting software). It ensures that your income, selling fees and cost of goods sold are accurately recorded for future reference. Use discount code ‘TRYA2X19_10%OFF’ for 10% off A2X for the first six months.
For UK businesses with a turnover of less than £150,000 per year, there is another way to look after your VAT returns.
In essence, you pay a flat rate of VAT on your sales (which is lower than the standard rate), but you aren’t able to claim back VAT on purchases.
Visit this page for more information about the VAT flat rate scheme.
“Sales tax is collected by the retailer when the final sale in the supply chain is reached via a sale to the end consumer. End consumers pay the sales tax on their purchases. Businesses issue resale certificates to their sellers when buying business supplies/inputs that will be resold since sales tax is not due. Tax jurisdictions do not receive the tax revenue until the sale is made to the final consumer.”Source
By contrast, VAT is charged at every stage along the supply chain. The amount of VAT that any one company pays to the government is the difference between the VAT received on income and VAT paid on purchases.
For more information about the differences between sales tax and VAT, check out this guide by Thomson Reuters.
When To Register For VAT As An Amazon Seller
Creating A Strategy On VAT For Amazon FBA Sellers
At the beginning of this article I showed you my strategy decision tree on VAT for Amazon FBA sellers:
Let’s now go into exactly how that strategy was formulated.
We spoke about Nexus and Distance Selling in the section on How VAT Works For International Sales which is very general and may have given you some ideas already for your VAT strategy. But there is one other important piece to the puzzle.
You should always be monitoring your sales to make sure you do not go over a VAT threshold. Quaderno is a tool to monitor it for you. And is particularly useful if Amazon isn’t your only sales platform.
We are Amazon FBA sellers so whether we are distance selling or creating a nexus is going to depend a lot on our Amazon FBA settings. Here are the options
Amazon FBA Options – Single Country, Multi-Country, Pan-Europe
There are a range of ways to store, manage and send your inventory to customers when selling on Amazon. These options are selected in the Fulfilment By Amazon section of Seller Central:
Single Country Through European Fulfilment Network (EFN)
“The European Fulfilment Network (EFN) allows sellers with an Amazon Europe Marketplaces account who are also registered for Fulfilment by Amazon to store their inventory in their local fulfilment centre, and fulfil orders coming from other European marketplaces from the same local inventory pool, maximising the control and flexibility that sellers have over their inventory.”
By using the European Fulfilment Network, you can list your products on local marketplaces throughout Europe and send orders from your country (rather than needing to hold stock in every country where you list products for sale).
Provide you do not select either “Pan-European FBA” or “Allow Inventory To Be Stored In Other Countries”. Then this is your default option.
- If you are below the distance selling threshold you do not need to register for VAT in other countries.
- Very simple to get started.
- Longer delivery times for customers and sometimes higher costs.
- Higher Amazon FBA fees.
- Once you hit the distance selling threshold you need to register anyway.
The key benefit of using the EFN is that you can sell your products in all of the main Amazon marketplaces without needing to immediately register for VAT in each country or hold extra stock to cover a larger number of warehouses. It’s great for smaller sellers and those who are just getting started.
However, when you use the EFN, you are less likely to win the buy box as a seller with local inventory. This is because Amazon tends to show the offers that are closest to customers and will take the shortest amount of time to be delivered.
Fulfilling orders from one country also exposes you to VAT distance selling thresholds. In the early stages of your business, this will probably not be an issue. However, it’s important to keep an eye on your sales in each territory so that you know when to register.
There are extra fulfilment fees for using EFN to export your goods across borders which aren’t incurred if you use Pan-EU FBA. More information on the fee structure can be found here.
Remember to monitor your sales to make sure you do not go over a VAT threshold. Quaderno is a good tool to alert you when you are close.
Multi Country Inventory (MCI)
As the name suggests, MCI involves holding your stock in multiple countries. For growing Amazon sellers, this is often a suitable intermediate stage between storing items throughout Europe with Pan EU FBA and fulfilling from one country with EFN.
Do not select “Pan-European FBA”. Enable “Allow Inventory To Be Stored In Other Countries” and choose your countries.
- Customers receive faster, local delivery when your products are located in fulfilment centres close to where they live.
- Your listings qualify for speedy shipping options such as Amazon Price 1-day delivery, FREE delivery and next-day delivery, where available.
- Cheaper fulfilment fees from delivery to customers near the fulfilment warehouse.
- You will need to register for VAT in each country you store stock in.
- You will need to manage stock in each country.
MCI and EFN can be combined to get the best of both worlds. Fulfilling orders from local inventory until you run out, then use the EFN warehouse for any shipments until your stock is replenished.
Another variation of MCI is to store your inventory in Germany, Poland and the Czech Republic. By strategically holding stock in these three countries, your deliveries can reach customers throughout Europe in a timely manner and save about 50c on each shipment.
For more information about multi country inventory, check out this article.
Pan European FBA
Once your business reaches a stage where it makes sense to expand your physical presence throughout Europe, you’ll probably be considering whether to use Pan EU FBA.
Pan Euro FBA is a no-brainer if you have already passed the distance selling in the main markets.
With Pan EU FBA, you simply send your goods to one Amazon warehouse, and then Amazon moves it around. They use predictive technology to place your inventory in the warehouses where they think it is most likely to be needed.
- Lower fulfilment costs.
- Amazon moves your inventory around so you don’t need to worry about it.
- You are eligible for Prime throughout all of Amazon’s European marketplaces.
- Deliveries are faster.
- However, using Pan EU FBA does mean that you need to have VAT registrations in every country where your stock is held, and file regular returns. Which is very expensive.
This adds complexity and costs to your business, but it also means that your operations are ready for ongoing growth without needing to add further VAT registrations or be concerned with distance selling thresholds.
Example 1: Seller With No VAT Registration
If your business is located in the UK and you’re just starting out, you may decide to begin with no VAT registration. In doing so, you can still use FBA and take advantage of the European Fulfilment Network.
Normally you will make more money not being VAT registered. You can charge the customer the same amount but keep the part you’d normally have to apportion as VAT. You will also save on the cost and hassle of filing VAT returns.
Example 2: seller with a UK VAT registration
As you start selling more products, you’ll eventually need to register for VAT in the United Kingdom. While the threshold is £85,000, you may decide to register earlier so that you can claim back VAT on purchases. Or to appear more established in your dealings with suppliers.
Amazon may also force you to register. For some reason Amazon allows some sellers to operate without a VAT number but forces some others to register.
It is at this point that you’ll need to decide whether to outsource your VAT returns or manage it yourself.
Keep a close eye on your sales volumes in European marketplaces and your exposure to distance selling thresholds.
Example 3: Seller with a UK VAT registration and one or more EU VAT registration
When you start entering European marketplaces, it makes sense to consider whether to continue using the EFN for fulfilment of all orders, or to place stock in European distribution centres.
It is possible to use a combination of EFN and Multi-Country Inventory. Fulfilling orders from the closest warehouse, and when you run out of stock defaulting back to the EFN model.
You’ll want to pay particular attention to the amount of stock held in each facility. And regularly move items around to ensure that inventory is always available for sale where it’s needed most.
By reducing the number of individual orders that get shipped across borders, you can save money on fulfilment fees.
Larger accounting firms provide VAT services throughout Europe, so that you can manage all of your filings with one relationship. But that comes at a higher cost.
Germany is the largest Amazon marketplace in the EU and has the lowest VAT rate. So it’s quite common for UK based sellers to register in Germany first. And then to move on to Poland and Czech Republic to save money on fulfilment fees.
Example 4: Seller who is part of the Amazon Pan EU programme
You’ll eventually reach a point where it makes sense to hold inventory throughout Amazon’s FBA network. Whilst this does mean more VAT returns, it also means that you get the most competitive offering from Amazon:
- It’s easier to win the buy box.
- Your products are eligible for Prime.
- Delivery fees are lower.
- Your products are dynamically moved around Europe to reduce delivery times to customers.
Overall, this results in more growth opportunities, less operational involvement on your part, and easy access to customers throughout Europe.
For many UK sellers, taking advantage of Pan EU fulfilment might seem unrealistic due to the high costs. I estimate that it costs about £1,000 per year per country in costs and time. So for Pan-Euro FBA to be worth it, the benefit must be more than the £7,000 cost to be compliant in all countries.
However, once you have passed the distance selling thresholds for your main markets, you have a robust supply chain, accounting partners and good cashflows, this makes sense as the next logical step.
Registering for VAT and Filing Returns
Importing Into The UK or Europe & EORI numbers
Before we go into details of VAT in Europe, let’s quickly talk about getting your goods into Europe in the first place. For that you need a EORI number.
What is an EORI number?
“An Economic Operators Registration and Identification number (EORI number) is a European Union registration and identification number for businesses which undertake the import or export of goods into or out of the EU.”
To import products into the UK or EU you need a EORI number. EORI numbers are used by customs to track and identify who is importing cargo.
During the year of 2020, you won’t need to have an EORI number to move goods between the UK and EU. However, from 2021 onwards, an EORI number will be required for this purpose.
How do I get an EORI number?
The process of applying for an EORI number is simple and straightforward. While it differs for each country, in the UK it takes around 5-10 minutes to apply.
To get your EORI number, you’ll need to:
- Visit the customs website of the country where you are applying for an EORI number (this list provides links to all of the EU customs websites).
- Navigate to the part of the website where you can apply for an EORI number (or alternatively find the right page by searching ‘apply for EORI number + [the country where you want to apply] into Google).
- Gather the information that you need to apply. These requirements will be on your customs authority’s website. In the UK, for example, you’ll need some or all of these documents: VAT number and effective date of registration, national insurance number (if you’re an individual or sole trader), unique taxpayer reference (UTR), business start date and standard industrial classification (SIC) code, and your government gateway user ID and password.
- Start the application process and provide the information required.
- Wait for your EORI number to come through. This normally happens within 48 hours, but it can sometimes take up to a week if the government needs to find out more information.
Now we’ve covered how to make a decision on where to register, let’s talk about what being registered and filing actually looks like.
Now that we have a clearer idea of what VAT actually is, let’s look at what it takes to register for VAT and become compliant.
Where should I register for VAT first?
Deciding where (and when) to register for VAT should be part of your overall market entry strategy. Once you hold stock in a country, you need to be VAT compliant – so make sure to plan out your registrations accordingly.
In general, it is recommend to begin by registering in one of the following countries first:
- Your home country – if you live in a particular EU country (and speak the language), start there. This will allow you to begin trading at home without needing to learn about a new country’s tax systems.
- United Kingdom – if you’re entering the European region from another part of the world, the UK is usually the best option for English speaking sellers. VAT registrations and returns are based in the local language.
What information do I need to provide to register for VAT?
To register for VAT in the UK, you’ll need to have access to these documents and information:
- Your national insurance number or ‘tax identifier’ – your unique taxpayer reference.
- Incorporation details from your certificate of incorporation.
- Details of all associated businesses within the last two years.
- Business bank account details.
- If you have acquired this business, you’ll need details of the business that has been transferred.
You’ll also need to have a login for HMRC’s online services to register in the UK. Different countries can often have slightly different variations to the UK rules.
Check out your country’s tax department website or ask your accountant for more details on what is required.
Lead times on VAT applications
Depending on which country you are registering for VAT in, and the method that you use to apply (manual or online), your application may take anywhere from a few working days to a couple of months. In the UK, HMRC aims to process applications within 10 working days. However, it often takes longer than this.
So what do you do in between the time when you registered and when your VAT number is issued?
While you cannot charge VAT until you have received your number, it’s important to keep all of your invoices. VAT on these bills can be claimed back at a later date.
Instead of adding VAT to your invoices, it is recommended that businesses “should increase the amount they charge by the prevailing VAT rate (20%), explaining to clients and customers that you will reissue the invoices with the VAT-able amount once you receive your VAT number.”
For Amazon sellers, this is not necessarily relevant – so you’ll be better off trading as you were before registering for VAT, but simply claiming it back on expenses.
During this interim period, you should actually pay less tax because you’re able to claim back VAT on expenses, but don’t need to charge VAT on income.
Other things to know about registering for VAT and filing returnsHow Often do I need to file VAT returns?
Each country has different rules around how often you need to file VAT returns. However, it is generally:
- Either monthly, quarterly, bi-annually or annually, and
- Based on your turnover.
In the UK, for example, the standard filing frequency is quarterly. However, if your VAT liability exceeds £2.3 million, you’ll need to submit returns monthly. Conversely, if you have a taxable turnover of less than £1.35 million, you can request to file returns annually.
For more information on VAT rules in the UK, check out this guide.
As with most areas of VAT law, the rules are different for each UK or EU country. Therefore, it’s important to check your due dates on a case by case basis.
In the United Kingdom, payment for monthly and quarterly returns is required within one calendar month and seven days from the end of the VAT period.
Each country sets their own rules on the consequences of filing or paying your VAT returns late. The best way to avoid late fees is to simply submit your returns and pay your taxes on time.
In the United Kingdom, HMRC records your payment as a ‘default’ if full payment of your VAT return hasn’t reached their account by the deadline.
If you default on a payment, you will enter a 12 month ‘surcharge period’. During this time, there are penalties for not complying with the rules, and the costs get larger every time you miss a payment.
In addition to late payment penalties, there are also costs for submitting inaccurate returns.
For more information around penalties in the UK, head to this page.
“Making Tax Digital (MTD) is a major change to the administration of the UK tax system. Her Majesty’s Revenue and Customers (HMRC) launched MTD in April 2019… MTD is another step taken by HMRC to integrate and digitalise tax submissions.”
This new scheme is designed to make the process of submitting VAT returns more efficient and effective, and to reduce the amount of mispayment errors due to people accidentally submitting inaccurate tax returns.
“The vast majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.”
To become compliant with the MTD regulations, you need to:
- Check if and when you have to follow the rules.
- Get the right software (Xero and QuickBooks Online are both compatible).
- Sign up for Making Tax Digital for VAT.
- Authorize your software.
One of the main questions that Amazon (and Shopify) sellers often ask is whether they need to report transactions on a daily basis, as is stipulated in the rules.
“HMRC acknowledges the difficulties involved in trying to clarify daily sales where a third party provides information in settlement periods. Amazon and Shopify both provide their daily sales data in settlement periods.”
Therefore, our understanding is that it’s okay to report sales on a settlement basis in your VAT returns. However, if you are unsure on how this applies to you, it’s worth asking your accountant.
How To Record, File & Pay VAT For Amazon FBA Sellers
How To File VAT returns
There are two main methods to file VAT for Amazon FBA sellers – doing it yourself (self-filing) or outsourcing the work to an agency.
There are no set rules that say you need to work with an accountant to file VAT returns. It is relatively easy to look after your VAT returns in-house if you’re just selling in one marketplace.
Just visit the online portal of your country’s tax department, submit the form manually or send the information directly from your accounting software.
Benefits of self filing VAT returns
- It’s free – you save the cost of paying an accountant or bookkeeping agency to do it for you.
- Good software to help automate – software like Quaderno and Xero can cut down the amount of time it takes to file VAT returns and make it much simpler to manage.
- Gives you more information to work with – by doing VAT returns yourself, you will have a deeper understanding of the financials and cashflows within your business.
Drawbacks of self filing VAT returns
- Can be time consuming – looking after tax returns yourself takes your focus away from other areas of the business that could generate more income.
- Potential for errors – tax laws are always changing, and the rules vary for each country. By working with a professional service provider, you can rest easy knowing that you’re much more likely to be on the right side of the law.
- Foreign language mistakes – If you are filing in Germany and don’t speak German, that is going to be a problem.
- You might pay more tax – companies that look after VAT returns on a regular basis tend to have a better understanding of ways to pay less tax.
- The more countries you file in the more complicated it is to manage.
In this screenshot below you can see Xero will automatically generate your VAT return for one country and can automatically file it for you.
Working with professionals
Tax agencies can manage the VAT compliance side of your business for you. Many Amazon sellers opt for working with the experts because it simplifies their job and gives them the space to focus on growth rather than management.
This is especially true when working with countries in a different language.
Benefits of working with VAT experts
- Saves you time – seriously, who really enjoys filing VAT returns? By outsourcing your tax burdens to a professional, you can spend more time focusing on other areas of your business.
- Ensures accuracy – as we mentioned before, tax laws are in a constant state of flux and each country has its own set of regulations. By working with the experts, you can feel confident that your returns are being done in accordance with the latest rules.
- No issues with language barriers – VAT returns generally need to be done in the local language. As you expand into new EU territories, there will eventually be a need for filing tax returns in a different language. Many tax agencies have offices or partners in each country, which means that they can look after all of your VAT requirements with just one relationship.
Drawbacks of working with VAT experts
- It costs money – accountants are expensive.
- May need to use many different firms – A large accounting firm that covers ever countries will probably be more expensive than finding a small firm in each country.
- You still need to do the majority of work in recording VAT accurately.
Amazon has a service called Amazon VAT Calculation Service (VCS). It is designed to completely manage VAT for Amazon FBA sellers where they team up with a big accountancy firm to file VAT returns. It’s a good idea but unfortunately, I can’t recommend it.
I used to use them but VCS caused me a huge amount of problems. To begin with they missed my first 3 months of filings which cost me large fines. Then they field for the wrong amounts meaning I overpaid thousands in VAT. And finally, I told them to stop filing for me but they continued for another 6 months. I ended up filing every VAT return twice causing more issues
It is all made much worse as there is no one to talk to. VCS is an automated system and when it breaks no one can help. It is much better to find your own agency to file for you with a human you can talk to if there are any problems.
HelloTax is another third-party option. It is an online service that will register and file all your VAT tax returns. Be warned it is expensive, 99 euros per country per month.
What I Do
I personally file VAT returns myself in the UK because I understand the language. And use a local tax firms in every other country. I find it is a good balance between ease and cost.
How To Record VAT As An Amazon Seller
Whether you choose to use a professional or file yourself. You will still need to accurately collect and record VAT on all your sales. This means making sure every inventory movement, every sale and every purchase are correct. It can be a nightmare.
Luckily as an Amazon seller, there are a wide range of tools that can automate most of this for us.
- Seller Central – lets you enter your VAT details and makes sure to collect the correct VAT from each customer. It then provides some Amazon FBA VAT reports so you can remit the correct amount to the tax offices. They are not very good unfortunately and you need to translate spreadsheets of every sale you have made.
- A2X Accounting – takes your transactions from Amazon or Shopify and enters them into your accounting system in a way that’s easy to reconcile when settlement payments arrive. (Use voucher TRYA2X19_10%OFF for 10% off A2X Accounting for the first six months). It is pretty expensive but necessary for keeping track of VAT in larger businesses.
- Xero or Quickbooks – are general bookkeeping software that most businesses use.
Setting it up VAT in Amazon once you are registered is pretty straight forward. Just go to “VAT Calculation Settings” and enter your VAT numbers.
Now Amazon will record the VAT you are collecting correctly in its system. And it will charge business customers the correct amount.
How To Get Your VAT Information Out Of Amazon
Amazon make it pretty difficult to get your information out of their databases which can create lots of problems when you’re filing VAT internationally. I use and recommend A2X Accounting (Use code TRYA2X19_10%OFF for 10% off for the first six months) because it automates it.
I have spoken them before in my article on how to automate your Amazon FBA accounting. But now I will cover in detail how to set up A2X for different tax situations.
To prepare for setting up A2X for your Amazon Seller Central account, we recommend the following:
- Check your VAT registrations: which ones are live, which ones are in process? Check that all of the current registrations have been added into Amazon Seller Central.
- Check that Amazon’s VAT Calculation Service is switched on: this will give you the most detailed information on your transactions.
- Check your product types: are all the products you sell standard rated (20% VAT)? Do you have any special product types that have a different rate of VAT? (Note: A number of items are charged at a lower or zero rate of VAT. These can include items such as car seats, books or some hygiene products). Check that your product listings in Amazon have the correct VAT rate applied for the product.
Check the VAT rates that have been applied to your Amazon fee invoices: the best place to look for these is in the Tax Document Library in Amazon Seller Central. This can be found at Amazon Seller Central -> Reports -> Tax Document Library. The invoices normally fall into three categories: Amazon FBA Fees, Amazon Merchant Seller Fees and Product Ads.
How To setup A2X Setup for UK sellers
Step 1: Set Up Google Login.
Step 2: Connect to an Amazon Marketplace.
Step 3: Connect to your Accounting System.
Step 4: Enter your VAT information:
The first place for any seller to start with their A2X account once all the login credentials and connections are established is to go to A2X -> Settings -> VAT.
Here you can switch on the VAT Jurisdiction Tracking and add the names of all the countries in which you are currently registered for VAT.
If you are not registered in any countries for VAT, you can skip this step for now.
Step 5: Set Up Accounts and Taxes
Go to the Accounts and Taxes tab.
Step 6: Create Default Accounts
Scroll down the Accounts and Taxes page and hit Save Mappings. A2X will ask you if you want to create the default set of accounts in Xero. Agree!
1: How To Setup A2X With No VAT registration
This is the easiest one to setup! You have no VAT registrations. Both your expenses and sales will be set up as NO VAT when you push them through from A2X to Xero.
Work through the following settings, with the main tax rate as NO VAT.
NB: Remember every section can be expanded using the orange cross on the right hand side of the category in the Accounts and Taxes page.
Work down the Accounts and Taxes mapping page, expanding every section with the orange cross to see the sub-transactions. There are three categories which combine two types of transactions, both expenses and income. These are Shipping, Other and Promotions.
Accounts should be mapped as shown below for a seller with no VAT registrations.
2: How To Setup A2X With Only UK VAT registration
This is the second easiest setup! You have only one UK VAT registration and are selling all of your products from the UK.
NB: Remember every section can be expanded using the orange cross on the right hand side of the category.
Work down the Accounts and Taxes mapping page, expanding every section with the orange cross to see the sub-transactions. There are three categories which combine two types of transactions, both expenses and income. These are Shipping, Other and Promotions.
Accounts should be mapped as shown below for a seller with one UK VAT registration.
3: How To Setup A2X with a UK VAT registration plus one or more EU VAT registrations
In this scenario, you have a UK VAT registration and in addition, one or more EU VAT registrations. In this example we will look at the mapping on the Accounts and Taxes page for a seller with a UK and a DE (German) registration that is live in Amazon Seller Central.
With this setup, you will need to create two extra accounts on the Chart of Accounts in Xero before we begin the mapping page.
The accounts you will create will be:
- DE Sales: this will be account type REVENUE and tax rate NO VAT in Xero.
- DE VAT Liability: this will be account type CURRENT LIABILITY and tax rate NO VAT in Xero.
If you are not familiar with setting up new accounts on the Xero Chart of Accounts then please check out this helpful article.
The next step is to pull these new accounts through to A2X. You can do this by going to A2X -> Settings -> Connections -> Xero -> Refresh Cache. This will bring those new accounts through to the mapping page.
Now you are ready to begin the mapping on the Accounts and Taxes page.
NB: Remember that every section can be expanded using the orange cross on the right hand side of the category.
Work down the Accounts and Taxes mapping page, expanding every section with the orange cross to see the sub-transactions. There are three categories which combine two types of transactions, both expenses and income. These are Shipping, Other and Promotions.
Accounts should be mapped as shown below for a seller with one UK VAT registration and a DE VAT registration. Where a transaction line appears with the information Jurisdiction DE, that line should be separated out to either the new DE Sales account or the DE VAT Liability account.
We will use a NO VAT tax code for these DE transactions. This will allow you to track them on your books for third party submission in Germany, without putting them through the UK VAT return.
4: How To Setup A2X With Amazon PAN EU And Multiple EU VAT registrations
For this setup, the seller will follow the exact same procedure as Setup 3 (above), however, they will set up an individual sales account and VAT liability account in Xero for every live VAT jurisdiction registered in Amazon Seller Central. For example, for a seller registered in the seven main countries, the new accounts would look something like this:
The Accounts and Mapping page will be mapped as follows:
Next Steps: refresh and send to Xero
The next step for all types of sellers once they are happy with their Accounts and Taxes setup is to refresh a settlement on the Settlements page and send it to Xero. Refreshing the settlement before sending will apply all your new tax settings to the period.
Special VAT Schemes
Some UK Amazon sellers are for various reasons registered on a different type of VAT scheme with special requirements.
For example, some sellers are part of a Flat Rate Scheme where they do not claim relief on any of their purchases or expenses but they get to pay a reduced flat rate of VAT on all their sales.
If you are in a scheme like this, you can still use A2X. However, we recommend reviewing the setup with your accountant to make sure that it satisfies all of the requirements for your particular scheme.
How To File VAT Once It Is In Your Accounting Software
A2X Accounting (Voucher TRYA2X19_10%OFF for 10% off for the first six months) will create draft invoices in Xero. You then reconcile these to your bank account the way you would any other invoice. You can check this post for more details on how that works.
When you registered for VAT you will have you will have been told when you need to file your VAT returns how long after that you have to pay.
When you are ready to file you have a few choices:
- File VAT through Xero’s own service. Which currently only works with one country.
- Do it manually by generating a report on Xero, filling in the forms and sending them off yourself.
- Give your accountant access to Xero and let them do it for you.
Here is a screenshot of Xero filing my UK VAT return.
How To Actually Pay The VAT
When you file the VAT return you will know how much you need to pay. Now you’d think this would be the easiest part, but sometimes actually paying it can be a challenge. For one, you need to pay in the same currency as the country you are filing in. And for two, some countries tax office don’t allow foreign bank transfers.
The easiest thing to do is to keep your money in a separate bank account for each currency that you are paying tax in. It can be difficult to set up bank accounts in other countries so most people use virtual bank accounts.
I personally use World First. Which provides you a bank account with unique wiring numbers for every currency you need. It integrates directly with Amazon and Xero. Then you can either pay your bills with the currency or exchange it to your local one and withdraw to your normal bank. The currency transfers are much cheaper than Transferwise or Amazon Currency Conversion in my experience.
Enter voucher code ‘PGL – FREEFX’ at World First when making your first currency transaction of $1,000 or more to get free fx transactions for your first two months.
Once you have a bank account in the local currency you can pay your VAT bill by bank transfer using your VAT reference.
Upcoming Changes To VAT In The UK And EU
There may be big changes ahead for UK and EU online eCommerce sellers and VAT. The EU has proposed a new VAT One Stop Shop (OSS) for online sellers. This is designed to simplify the VAT submission process by allowing eCommerce sellers to submit one VAT return for all of their EU sales.
Whether these will be delayed and how Brexit will affect the requirements for UK sellers is still not clear. That being said, here are a few thoughts on the potential implications of Brexit and COVID19…
When the UK opted to leave the EU, that put a ‘spanner in the works’ for a wide range of issues related to import, export and taxation.
At the time of writing (May 2020), we are in a transitional period, which will last until the end of the year. This phase is in place for the governments of the UK and EU counterparts to iron out the finer details of the new arrangement.
With this in mind, it is too early to have a clear picture of what Amazon VAT for UK and EU sellers is going to look like.
However, here are a few things to keep in mind that are likely to happen:
- Goods moved between the UK and EU will probably be treated as imports and exports. Under this structure, the exporter would not charge VAT, but when items reach the destination country, the local tax authority may charge VAT.
- Distance selling into the EU may become a thing of the past for UK sellers. Rather than keeping an eye on thresholds, sellers will probably have a choice between registering in an EU country or simply exporting Amazon sales to customers in the EU.
- If that happens, it is likely that many UK based Amazon sellers will need to get an EU EORI number. It is also likely that holding stock in a European FBA warehouse is going to make more sense for smaller UK-based sellers (compared to EFN with distance selling from the UK).
- If parcels sent between the UK and EU are treated as export and import events, then the reverse charge mechanism will no longer be valid in these instances. Rather, the importing business would need to pay VAT on arrival and claim it back in their return.
Due to the widespread impacts of COVID19, many governments around the world have provided tax relief by reducing the VAT rate on certain goods and services, and allowing for delayed payment without penalties.
If you are based in the UK, you may have 9-12 months extra to pay your VAT.
“Because of coronavirus (COVID-19), you can delay (defer) any VAT payments due between 20 March 2020 and 30 June 2020. If you choose to defer a VAT payment, you will have until 31 March 2021 to pay it.”
To determine whether you might be eligible for tax relief, use this calculator.
- VAT – Value Added Tax. The name of the sales tax used in Europe and UK.
- FBA – Fulfilled by Amazon. The network of warehouses that Amazon operates and allows small business to become international sellers.
- FBM – Fulfilled by Merchant. A way to sell on Amazon without using FBA. When you get an order you deliver it yourself.
- EFN – European Fulfilment Network. Amazon’s network to ship orders made in one country from stock held in a different country.
- Pan Euro FBA – An Amazon FBA scheme to distribute your stock across all of Europe and UK.
- A2X – A third party account software that integrates with Amazon Seller Central.
- Seller Central – The dashboard used by Amazon Sellers and Amazon FBA users.
- MCI – Multi-Country Inventory. The name for using FBA to store your products in more than one country and accessed by the same Seller Central dashboard.
- EORI – Economic Operator Registration Identification. Is a unique number needed for your company to import goods into Europe. Each country has its own version.
Amazon has blown open international commerce to small-time sellers but unfortunately, international tax law hasn’t kept up. In particular tax compliant is a nightmare.
I hope this article has helped shed some light on how it is possible to manage VAT for Amazon FBA businesses of all sizes. Good luck and remember to check any ideas with your accountant!
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