Most e-commerce entrepreneurs will explore Amazon FBA at some point but learning how to properly account for sales can be a frustrating journey. Let’s look at how to calculate VAT on Amazon sales.
Whether your e-commerce business is currently VAT-registered, or you know you will be hitting the threshold soon, you will need to know your way around Amazon FBA VAT. This can be further complicated if you are selling across multiple countries, at which point you should seek advice from a qualified professional, but for now, we aim to help you understand Amazon on sales in the UK.
Remember, you must register for VAT if your VAT taxable turnover goes over £85,000 and your VAT taxable turnover is the total of everything sold that is not VAT exempt.
Here’s how to calculate VAT on Amazon sales…
The Amazon guidance
Although we are sure you have already read through the basic information, it is always best to start at the source. Amazon states that “in accordance with the laws governing members of the EU, Amazon is obliged to charge VAT on all orders delivered to destinations in member countries of the EU. VAT is charged in accordance with the local legislation in each member state.”
All prices on Amazon are inclusive of VAT, which in the UK, currently stands at a 20% standard rate.
Amazon VAT Calculation Service
The Amazon VAT Calculation Service (VCS), launched in July 2019, is a quick and easy way to calculate VAT on Amazon sales, but only on B2B sales.
Once registered, it will calculate your sales price without VAT and display that automatically to Amazon business accounts, but it won’t affect prices displayed for consumers who have registered under a personal account. Businesses who purchase your product will receive a VAT invoice that was created automatically by the VCS.
How to calculate VAT on Amazon sales – Standard rate
We hope that as an e-commerce entrepreneur, you are well-aware of the relevant VAT rate on your products, so let’s look at how to calculate your VAT if you are selling goods under the standard rate.
If you are selling a product at £10 under the standard VAT rate of 20% then it will be sold on Amazon at £12 to a non-business customer. In this example, it is clear the VAT is £2. It is important to note that this figure is taken off from the sales price before you pay any Amazon charges. If you are working backward from your final sales price, you can simply divide your final sales figure by 6 to reach the VAT figure if you are on the standard rate. For example, a sale of £54 ÷ 6 = £9 VAT.
How to calculate VAT on Amazon sales – Flat Rate or Non-standard Rate Goods
If you are registered under the flat rate scheme or sell goods that do not fall under the standard rate, then a variety of free VAT calculators are available online, such as this one: http://www.vatcalculator.co.uk/
You can use this tool by entering your sales price and then deducting or adding VAT at a rate you set to get a breakdown of your gross, net and VAT figures for the sale.
Can I use Amazon’s VAT Calculation Service globally or only within the EU?
Amazon’s EU VAT Calculation Service can only be used for sales on the Amazon EU marketplaces and only supports products that are dispatched from locations within the EU.
However, if any orders are shipped directly from outside the EU into the EU, Amazon’s VAT Calculation Service will issue a receipt.
Should I continue to issue VAT invoices once I enroll in Amazon’s VAT Calculation Service?
Amazon’s VAT Calculation Service will automatically issue invoices and credit notes to Amazon Business customers, as well as those customers that have inputted their VAT number of tax number into their accounts.
Can VAT Calculation Service correct VAT invoices?
If you need to update aBilling Address on the VAT invoice, Amazon’s VAT Calculation Service supports this. The service can also issue a credit note against the original invoice and a new corrected VAT invoice with the updated Billing Address.
Is it mandatory to have a VAT number to join Amazon’s VAT Calculation Service?
Yes! All sellers are required by law to provide at least one valid European Union (EU) VAT registration number in order to enroll into the VAT Calculation Service. You must also
provide all EU VAT numbers associated with your business for countries where their inventory is stored.
If you would like to talk to us about VAT for your business, whether it is on Amazon or any combination of e-commerce platforms, we are here to help. As e-commerce specialists, we understand your business like no other. Get in touch today to find out more about how we can help your business reach its full potential.
The best time to act is now.