Follow us on social media and share your feedback

Download our app‍s‍:

Download on the App StoreGet it on Google Play
UK
  • Singapore
  • Hong Kong
  1. Osome Blog UK
  2. Understanding Value Added Tax (VAT) for UK Amazon Sellers

Understanding Value Added Tax (VAT) for UK Amazon Sellers

Understanding Value Added Tax (VAT) for UK Amazon Sellers

Amazon is a popular online platform for most business owners and large retailers to sell their goods and services. Whether it’s providing business-to-business (B2B) or business-to-consumer (B2C) services, selling products and services online help most businesses to get additional revenues in this digital era.

But one of the topics that Amazon sellers face doubts about is Value Added Tax (VAT). Questions like, what is VAT; should my business apply for VAT; how much should I charge, and how should I go about claiming VAT? are always at the back of their mind.

By the way, if you’re tired of dealing with accounting papers which can get really complex for an e-commerce business, we’re here to help you sort your accounting documents for e-commerce platform. Drop us a chat.

Skip to:

What is VAT?

VAT stands for Value Added Tax. It is also known as consumption tax and applies to businesses that are based in the European Union (EU) and U.K zone.

The purpose of VAT is to add tax on top of the goods and services provided. This means that the goods and services that are bought and sold for use in the EU and U.K have to be taxed. In other words, VAT is also considered as an indirect tax where business owners collect tax on behalf of the government.

How does VAT work for Amazon Sellers?

VAT  is charged on the price of a product at every stage from manufacturing to selling to consumers. The worth of this product will increase and become more valuable at each stage.

For instance, a business owner has to pay for VAT when they purchase raw materials to make a handbag. After which, the business owner will charge VAT to their customers when they buy the handbag.

The VAT paid to suppliers is known as the input VAT whereas the VAT received from the customers is called output VAT.

Serene is an Amazon seller, and imports insulated lunch bags from another country. Before you she can sell it to the consumers in the UK, she will need to pay import tax to the tax authorities. After the payment has been made, she is then able to sell it. However, she will need to charge VAT on every sale that she makes. At the end of each period, you would have to add up all the VAT paid and collected and the difference is then either owed to or from HMRC.

What are the current VAT rates?

According to the EU laws, the minimum percentage value of the standard VAT rate has to be set at least 15% and reduced rate at 5%.

The current VAT rate in the U.K is 20%. The charging of VAT rates depends on the goods and services supplied by the seller. Here is a list of current VAT rates and what it applies to in the U.K:

Description Rates

Standard Rate:

All goods and services

20%

Reduced Rate:

Health products, such as mobility aid; energy, and children’s car seats

5%

Zero Rate:

Publications, children’s products, motorcycle helmets, or goods that are supply to non-EU countries

0%

This means that more than half of the goods and services sold on Amazon will have a 20% VAT charge on top of the sale price. Additionally, it is important that sellers know the current VAT rates to confirm that customers are being charged properly.

Does my company need to register for VAT?

Does your company hit the current VAT threshold?

Firstly, you will need to check the annual profits of your business. The current VAT threshold is £85,000. If your business has an annual turnover of £85,000 or within the last 12 months, you must register for VAT with HM Revenue and Customs (HMRC). But in the event your profit drops to less than £83,000 after the registration, you may deregister your VAT with HMRC.

Simon sells Bluetooth speakers on Amazon. His annual turnover in his first two years of business was £100,000. Since his business had reached the VAT threshold of £85,000, he decided to register for VAT. However, in his third year of business, he faces financial difficulties. When the financial year ends, he realises that his profit has dropped significantly to less than £80,000. With that, he decides to deregister his company’s VAT.

Are you selling zero-rated goods?

Secondly, check if you are selling zero-rated goods. This refers to products that cater to a wider population and benefit the less fortunate. For example, if you are selling children’s clothes or books, you will charge VAT that is zero-rated which means 0% VAT.  The goods are still VAT-taxable but the rate of VAT you must charge your buyers is 0%. You still need to record them in your VAT accounts and report them on your VAT Return. If you are selling mainly these products or only these items, then you don’t have to register for VAT.

What documents do I need to register for VAT?

Here is a list of documents you will need to prepare when you register for VAT:

  1. National Insurance number – this is a unique reference no. for the taxpayer
  2. Certificate of incorporation
  3. Details of all associated businesses within the last two years
  4. Business bank account details
  5. Details of business that has been transferred or acquired, if appropriate

You may register online, or our accountants can help you with this if you want to focus on the growth of your company.

I have registered for VAT. But how do I upload my details on Amazon?

After you registered for VAT, you will receive a VAT registration certificate. This includes:

  • Your VAT number
  • Submission deadline of your first VAT return and payment
  • Your effective date of registration

The VAT number is a unique reference number that consists of 15 alphanumeric characters. The first two characters will be the country of the registered business. For instance, if your business is based in the U.K, it should be GB.

Whether you are a new or an existing seller, you must upload your VAT registration details on Amazon. You will also need to fill in your legal company name and registered address. With that, Amazon will require you to upload your VAT registration certificate for verification.

Printing of VAT Invoices

Only VAT-registered businesses are allowed to issue VAT invoices. For VAT-exempted businesses, you will need to issue VAT receipt. Attaching a VAT invoice and receipt with the goods sold is important as it keeps them the customers informed about the rates being charged. As of 1 July 2013, you are able to print and save a copy of your VAT invoice for every order you received on Amazon. The following details are to be included on the invoice:

  • Company name & registered address
  • VAT Registration Number
  • Unique Identified Number
  • Date of Issue
  • Time of Supply
  • Description of Goods or Services Supplied
  • Total Amount (excluding VAT)
  • Total Amount of VAT
  • Price per item (excluding VAT)
  • Rate of VAT charged per item
  • Rate of any discount per item

It is also common that at times, sellers may forget to attach the VAT invoice when they are busy fulfilling their orders. When customers request a VAT invoice for their purchases, sellers have to provide the document. This is so that customers may use the invoice to claim, or for record purposes.

What if I am selling my products to a non-UK customer, does VAT still apply?

This is where things get complicated. If someone outside of the EU purchases goods from you, VAT does not apply to the customer. However, when goods are sold from a seller in the U.K to another customer who lives in another EU state, this will be considered as distance selling. Once the shipping of goods has exceeded the distance-selling threshold, the seller will have to register for the other EU state’s VAT and charge that rate to the customer.

Here is an example of distance selling:

Louis from France buys a batch of electric kettles that are listed on Amazon. The goods are dispatched from the warehouse in the UK and there will be a UK VAT charge. But once the goods have reached the French borders, it will have exceeded the distance-selling threshold. In this case, the company that sells electric kettles will have to register for France VAT and charge Louis accordingly.

To ease the shipment of goods abroad, some businesses store their stock in a fulfilment warehouse in other EU states. This is so that it will be shipped efficiently to the customers. But this will also mean that there is a higher chance of exceeding distance-selling threshold and businesses will have to register for EU VAT. You can do it on your own but if you need help, our accountants are experienced in helping e-commerce businesses deal with this.

The current distance-selling threshold in the UK is £70,000 per year. As the UK has left the European Union and the transition period of Brexit comes to an end on 31 December 2020, the threshold rates may change after that. We will let you know on our UK Osome blog as soon as we get the news.

How to Reclaim Back VAT?

The golden rule when claiming VAT back is that you can claim only on products and services that are used wholly and strictly for your business. This means office supplies, laptops and hardware, transport costs and services like accountancy all count if they are solely used for the purpose of your business. Other than that, here’s what you can and cannot reclaim for VAT.

Can Reclaim VAT Cannot Reclaim VAT
  • You can usually reclaim the VAT paid on goods and services purchased for use in your business.

Jamie owns a skincare company which is VAT-registered. She decides to buy a new laptop for her new staff. She goes to Amazon and purchases one. With the VAT invoice issued by the seller, she is able to claim the VAT.

  • Anything that’s only for private use
  • Goods and services your business uses to make VAT-exempt supplies
  • Business entertainment costs
  • Anything you’ve bought from an EU country
  • Goods sold to you under one of the VAT second-hand margin schemes
  • Business assets that are transferred to you as a going concern

How do I claim VAT for my Business?

To claim VAT, you will need to submit a VAT return form online to HMRC. Whether you are selling all goods and services or zero rate goods, you will need to keep a record of your sales. Refunds will be given within 10 days after your submission to HMRC. But it may take longer. You may contact HMRC if you do not hear from them after 30 days.

What are the goods and services exempted from VAT?


Some products and services are exempt from VAT. If all the goods and services you sell are excluded, your business is exempt and you don’t have to register for VAT. On the flip side, this also means you cannot reclaim any VAT on your business purchases or costs.

You don’t have to register VAT if you are selling these:

  • insurance, finance and credit
  • education and training
  • fundraising events by charities
  • subscriptions to membership organisations
  • selling, leasing and letting of commercial land and buildings - this exemption can be waived

Amazon Seller VAT Calculation

To claim your VAT, you will need to calculate the difference between your input tax and output tax. The difference in the amount is what you are owed or owe to the authorities. So how does the calculation work? Let’s take a look at the example below:

Lionel buys a batch of power banks from his suppliers at £8 each. He sells the power bank at £10 each. As the goods are under the standard rate, he is going to charge £2 VAT on top of the selling price. So the calculation will be £8 - £2 = £6. The difference between output tax and input tax is £6. This amount is what Lionel owes to the tax authorities.

Summing Up: The Importance of VAT for Amazon Sellers

VAT gives sellers credibility

VAT can be a tedious task for many Amazon sellers. The process is time-consuming and complex. But the advantage of registering for VAT is that it gives the seller credibility. On the other hand, sellers can also gain monetarily when they reclaim their VAT.

File for VAT Returns, or face penalties...

With the demand for online shopping in this digital age, Amazon sellers should also take note of keeping a record of their sales and filing of VAT returns. According to HMRC Internal Compliance Handbook, failing to notify the government about VAT registration will result in penalties.

...or fines

Likewise, submitting false information will also result in hefty fines. Handling VAT for business requires a significant amount of administrative work. To ensure that your VAT claims are properly filed, you may engage an online UK accountant to take care of your VAT returns.

Share this post:

Tips to run your business smarter.
Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

You might like it

The Best Way to Set Up a Business in Singapore from the UK
Foreigner's guide

The Best Way to Set Up a Business in Singapore from the UK

Singapore taxes are low, company formation for foreigners is easy, and a foreigner can own 100% of a Singapore business. If you decide to move, the quality of life is high.

Seller Spotlight on Merch Master: How a Clothing Merchandise Agency Does Accounting
Entrepreneur's Bootcamp

Seller Spotlight on Merch Master: How a Clothing Merchandise Agency Does Accounting

This is a part of a series on Osome Seller Spotlight where we get to know the people behind the businesses we serve.

4 Ways To Find the Best Co-Founders for Your Business
Entrepreneur's Bootcamp

4 Ways To Find the Best Co-Founders for Your Business

Sometimes you need someone to either help you improve and execute your great idea or to help you raise the capital you need before setting up a company. That is where the need for a cofounder arises. Here are 4 tips to find the right one.

A Guide To Bookkeeping For When You've Never Done It
Entrepreneur's Bootcamp

A Guide To Bookkeeping For When You've Never Done It

The process of bookkeeping refers to recording, classifying, and organizing any financial transactions within your organization. We go through the basics for new business owners.

What Small Medium Businesses Should Know About UK Budget 2021
Running My Business

What Small Medium Businesses Should Know About UK Budget 2021

What does the budget mean for UK SMBs? And what can they do with it? Let's explore.

Growing Your Online Store: 5 Basic Accounting Tips
Entrepreneur's Bootcamp

Growing Your Online Store: 5 Basic Accounting Tips

Accurate accounting can help your online store make profits. Here are 5 accounting basics to level up your finances and grow your online store.

Filing Annual Returns in the UK: A Quick Guide
Entrepreneur's Bootcamp

Filing Annual Returns in the UK: A Quick Guide

Whenever you register your company in the UK, you are required to submit your company's Annual Return to Companies House annually.

What Is an Annual General Meeting and Does My Company Need To Hold One?
Entrepreneur's Bootcamp

What Is an Annual General Meeting and Does My Company Need To Hold One?

Get a sense of whether your company needs to have a General Meeting (AGM) before presenting its financial statements to its investors (members).

The Pros and Cons of Registering my E-commerce Company for VAT
E-commerce

The Pros and Cons of Registering my E-commerce Company for VAT

While most business owners have the misconception that VAT registration is tedious and an additional bill to look after, VAT can also be advantageous to your business.

Starting an E-commerce Business From Home
E-commerce

Starting an E-commerce Business From Home

What good will going online do for me? In this article, we discuss how choosing to go online can work out to your advantage in the long run.

T-shirt Business: How To Start One the Fuss-Free Way
E-commerce

T-shirt Business: How To Start One the Fuss-Free Way

People shop online more often than from traditional stores. Here’s a guide on how to get started with t-shirt selling.

What Businesses Need to Know About Data Regulation Post-Brexit
Brexit

What Businesses Need to Know About Data Regulation Post-Brexit

The UK's general data protocol remains largely in line with the guidelines in the General Data Protection Regulation (GDPR), although there are new standards to be aware of.

Tips to run your business smarter. Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

We’re using cookies! What does it mean?