As of 1st August 2024, Amazon has implemented significant changes directly impacting VAT-registered UK sellers. These changes revolve around the VAT treatment on Amazon fees and invoicing, which could have substantial implications for many eCommerce businesses, particularly regarding cash flow and bookkeeping requirements.
With an estimated 280,000 active sellers in the UK, these adjustments are affecting a large portion of the Amazon seller community.
Key Changes to VAT on Amazon Fees
One of the most critical updates is the introduction of VAT on all Amazon fees. Previously, UK sellers were not required to pay VAT on these fees. However, from 1st August 2024, all fees associated with selling on Amazon—including referral fees, Fulfillment by Amazon (FBA) fees, and other related charges—are now subject to the standard 20% VAT rate.
Impact on Cash Flow:
For many sellers, this has resulted in a 20% increase in the cost of using Amazon’s services, significantly impacting cash flow. If your business is not VAT registered because you are below the £90,000 VAT threshold, you now face this 20% increase without the ability to reclaim VAT, which could erode profit margins.
Invoicing Changes with Amazon EU S.Ã r.l. (AEU)
These VAT changes are due to Amazon’s transition in its billing entity. Previously, Amazon fees were billed by Amazon Services Europe S.Ã r.l. (ASE). Now, as of 1st August 2024, these fees are billed by Amazon EU S.Ã r.l. (AEU). For UK sellers, this change means you are now invoiced by the UK branch of AEU, bringing these fees under the scope of local VAT rules.
VAT Compliance:
As a UK-based seller, it is crucial to carefully monitor these invoices and ensure compliance with VAT reporting requirements. This involves ensuring that all Amazon-related expenses are correctly reflected in your VAT returns.
Bookkeeping Adjustments for UK Sellers
The change in VAT treatment necessitates adjustments in your bookkeeping processes:
- Accounting Software Updates:
Previously, Amazon fees were accounted for using the Reverse Charge Expenses tax rate. Under the new rules, these fees are now taxable in the UK at the standard 20% VAT rate. It is crucial to update your accounting software to reflect this change and avoid any discrepancies in your VAT returns. - VAT Recovery:
If your business is VAT registered, you can reclaim the VAT on Amazon fees through your VAT returns to HMRC. However, businesses not VAT registered are now facing a direct 20% cost increase.
Potential Impact on Consumers
Although the changes directly affect sellers, there could be indirect consequences for consumers. Typically, when VAT on business expenses increases, businesses may choose to pass on these additional costs to their customers in the form of higher prices. The exact impact on end consumers will depend on how sellers adjust their pricing strategies.
What UK Sellers Should Do Next
Now that these changes are in effect, UK Amazon sellers should:
- Review Their Cash Flow:
Reassess your cash flow projections to account for the increased expenses and adjust your budget accordingly. - Update Bookkeeping Systems:
Ensure your accounting software correctly handles the new VAT treatment of Amazon fees. - Consult with a Tax Advisor:
Discuss the implications of these changes with your tax advisor to ensure full compliance and optimise your VAT recovery process. - Consider Pricing Adjustments:
Evaluate whether you need to adjust your pricing to account for the increased costs due to VAT on Amazon fees.
At eAccounts, we understand the challenges these changes bring to your business. Our team is here to help you navigate this transition smoothly, ensuring your bookkeeping and VAT compliance remain on track. Contact us today for personalised support tailored to your specific needs as an Amazon seller.
FBA fees for orders fulfilled from outside Great Britain are reverse charged rather than charged at 20%.
Selling through FBA? Our Amazon FBA accountants can handle your VAT for you.
