On the 1st January, there are a number of upcoming changes planned for VAT and as a result of Brexit. This article looks at how they affect Amazon UK sellers. Many sellers have mistakenly interpreted these announcements to mean that Amazon will now be responsible for collecting all UK VAT. This is incorrect and Amazon will only be collecting VAT in certain scenarios. We will explain when Amazon collect UK VAT in this article.
Aside from this article, if you want to see an overall summary of the planned VAT changes for ecommerce click here. If you are a dropshipper and want to see how these VAT changes affect dropshipping click here.
Amazon UK VAT Changes from 1st January 2021
If you are a UK business: Your VAT situation will remain pretty unchanged and you do not need to take action. The only time a difference will occur for you if you are dropshipping and/or sending goods directly to consumers from suppliers that are based outside of the UK. Read more below.
If you are a non-UK business: Amazon will collect VAT on your behalf on all B2C sales. However, you will still be expected to account for the VAT yourself on B2B transactions. Read more below.
B2B or B2C?
A key change to UK VAT is that B2B (business to business) and B2C (business to consumer) transactions will have slightly different accounting treatments when goods are sold from overseas.
As Amazon is an online marketplace, the majority of the transactions will be B2C. However, this does not mean that all of your transactions will be B2C. So you need to be aware that you may have a mixture of both B2C and B2B transactions on your Amazon account. Each batch (B2B or B2C) will have a different VAT treatment.
For B2C Transactions - Amazon will collect VAT in the following two scenarios:
- Where goods (up to a value of £135) are sold on Amazon and shipped directly from outside of the UK to UK consumers
If you are a non-UK seller shipping goods from outside the UK to UK consumers, this will apply to you.
If you are a UK seller and your goods are being shipped from Amazon UK FBA, this will not apply to you.
- Where goods (any £value) are sold on Amazon to UK consumers and the seller is not established in the UK
If you are a non-UK seller shipping goods from Amazon FBA UK, this will apply to you.
If you are a UK seller this will not apply to you.
For all other transactions (including B2B Transactions):
Things do not change. Amazon will not collect the VAT and the seller will be required to account for VAT as it did before the 1st January 2021.
What VAT rates to use on your VAT return
Where Amazon (or another OMP) collects VAT on your behalf you should treat the transaction as being zero rated (e.g. 0% VAT) on your VAT return. Meaning that they are declared in box 6. This is an important distinction because by zero rating the sales it means you are counted as making taxable supplies, which means although you aren't collecting the VAT, you are still legally allowed to reclaim any VAT paid to suppliers.
Since these sales are zero rated, they also count towards your taxable turnover, so if you are on the Flat Rate Scheme you will be at a huge disadvantage. If you are on the Flat Rate Scheme and are making a high % of B2C sales you should consider moving to the standard VAT scheme.
How will you account for my Amazon VAT correctly?
As accountants that specialise in working with Amazon Sellers, we will ensure that the correct rate of VAT is calculated by using the Amazon VAT Calculations Report (VCR).
Amazon have announced that they will add two additional columns to the VCR:
- Tax Reporting Scheme: This column identifies the tax legislation concerning the transaction.
- Tax Collection Responsibility: This column will identify who is responsible for the collection and remittance of the VAT. Where it states "Marketplace" then Amazon will be responsible for collecting/paying the VAT and where it states "SELLER" then the seller will be responsible for collecting/paying any VAT.
At the time of writing the new version of the report has not been released, however, when it is we will make the necessary adjustments. There is nothing special that you our client need to do for us. If there is, we will notify you directly.
How do you know if you are making a B2C or B2B sale on Amazon?
If the customer has a valid UK VAT number Amazon will categorise the transaction as B2B. If they do not, it will be categorised as B2C.
What happens if I am selling items for >£135 on Amazon?
If you are a UK business and selling items for >£135 then nothing changes and you will continue to account for VAT as you did before.
I am a UK business selling goods for <£135 on Amazon, what changes impact me?
This will not affect you. You will continue to account for UK VAT as you did before 1st January 2021.
I am an overseas business - All of my sales are B2C and Amazon is collecting all of my VAT now. Do I still need to submit a VAT return?
Yes, you will still need to submit a VAT return to HMRC. Most likely you will have no VAT to pay OR you will have VAT to reclaim.
What about Amazon UK to Amazon EU Sales?
From 1st January 2021 Amazon will no longer be including the UK in the PAN EU fulfilment network and will no longer be facilitating UK to EU sales, so there will be no EU VAT implications to think about on Amazon UK. This may change in the future. We will update accordingly when it does.