If you've started selling products through Amazon, you've probably realised that Amazon FBA VAT appears far more complicated than VAT for a traditional retail business.
Questions such as 'Do I need to register for VAT?', 'Does Amazon pay the VAT for me?' and 'Can I reclaim VAT on Amazon's fees?' are just some of the most common queries we receive from e-commerce sellers.
The good news is that, although Amazon's fulfilment model introduces some additional VAT considerations, the underlying rules become much easier to understand once you know how they fit together.
In this guide, we'll explain Amazon FBA VAT in plain English. We'll cover when you may need to register for VAT, how Amazon's fees are treated, what happens if Amazon stores your goods overseas and the common mistakes that often lead to unexpected VAT liabilities.
What is Amazon FBA?
Amazon FBA stands for Fulfilment by Amazon.
Instead of storing products yourself and dispatching every order, you send your inventory to one or more Amazon fulfilment centres. Once your products are in Amazon's network, Amazon takes care of much of the day-to-day logistics on your behalf.
This includes:
For many businesses, Amazon FBA enables them to scale much more rapidly than would otherwise be the case.
However, from a UK VAT perspective, Amazon FBA also adds further complexity because Amazon may hold your stock in multiple warehouses and deduct numerous fees before paying you. What's more, Amazon also may move your inventory between countries.
Amazon FBA VAT Explained
One of the biggest misconceptions from e-commerce sellers is "Amazon deals with all the VAT, so I don't need to worry about it." Unfortunately, that isn't always the case.
Whilst Amazon collects payments from your customers and provides the online marketplace via which your sales are made, you remain ultimately responsible for accounting for and complying with your own VAT obligations. Importantly the only exception would be where specific rules require Amazon to account for the VAT on a particular transaction.
Exactly how Amazon FBA VAT works for your business will depend on a number of factors, including:
Consequently, two Amazon sellers with very similar businesses could have entirely different VAT obligations. Therefore, a key point is not to assume that another seller's experience applies to your own business.
Do Amazon FBA Sellers Need to Register for VAT?
Simply becoming an Amazon seller doesn't automatically mean you are required to register.
For many UK businesses, the normal VAT registration rules apply. If you anticipate your taxable turnover will exceed the UK VAT registration threshold over a rolling 12-month period or within the next 30 days, mandatory registration is usually required.
However, Amazon sellers should be aware that turnover isn't the only factor that can trigger a VAT registration. Depending on how your business operates, you may also need to consider VAT registration where:
Therefore, businesses should review their VAT position regularly rather than just monitoring their turnover.
Why Amazon FBA VAT Is Different from Traditional Retail
If you sell products through your own website, your accounting records are usually fairly straightforward. Your customers pay you directly and your stock remains in one location. The money arriving in your bank account generally reflects your sales, less any payment processing charges.
Amazon FBA works very differently.
Your customers pay Amazon which deducts a variety of fees before sending you the balance. At the same time, your stock may be moved between fulfilment centres and, depending on your fulfilment settings, may even be stored overseas.
As a result, understanding Amazon FBA VAT involves much more than simply calculating VAT on your sales. You also need to understand how Amazon's fees, inventory movements and cross-border transactions affect your VAT position.
However, once these areas are understood and your bookkeeping is set up correctly, managing your VAT becomes much more straightforward.
How Does VAT Apply to Amazon's Fees?
One of the biggest areas of confusion for Amazon sellers isn't the VAT on their sales – it's the VAT on Amazon's own fees.
Importantly, Amazon doesn't simply charge you a commission for selling through its marketplace. Depending on the services you use, you could also pay:
Understanding how these charges are treated for VAT purposes is important because, in many cases, they may affect the amount of VAT recovery or the amount you need to account for on your VAT return.
Is VAT Charged on Amazon's Fees?
There isn't a single answer to this question.
Amazon operates through a number of different companies and the VAT treatment of its fees can vary depending on the service Amazon supplies. and the Amazon company providing that service.
For example, you may find that:
For this reason, it's worth noting that every Amazon invoice should not be treated in exactly the same way. Instead, you should review each invoice to establish the correct VAT treatment.
Why Does This Matter?
The VAT treatment of Amazon's fees determines how you should recorded them in your accounts and, if you're VAT registered, how you should report them on your VAT return.
Recording Amazon's fees incorrectly can lead to:
Modern accounting software (such as Link my books and Xero) can automate much of this process, you should ensure the underlying VAT treatment is correct.
Can You Reclaim VAT on Amazon's Fees?
If your business is VAT registered, you may be entitled to recover VAT incurred on qualifying Amazon business expenses, provided the normal conditions for recovering input tax are met.
However, the amount of VAT recovery, and the method of reporting the transaction depends on the VAT treatment shown on the relevant invoice and the nature of the service supplied.
For that reason, it's good practice to retain and review all Amazon invoices as part of your bookkeeping procedures.
What If Amazon Doesn't Charge UK VAT?
Sometimes you may receive an invoice from an overseas Amazon group company rather than a UK company. Where this happens, the invoice may not show UK VAT.
Instead, UK VAT-registered businesses may need to account for the transaction under the reverse charge rules. These rules effectively require the recipient of certain services that overseas suppliers provide to account for UK VAT on their VAT return, rather than the overseas supplier charging UK VAT directly.
However, whether the reverse charge applies depends on the specific circumstances and the supplier shown on the invoice. For this reason, care should be taken to review the VAT treatment of each invoice rather than treating all Amazon invoices identically.
A Practical Example
Suppose you receive two invoices from Amazon during the same month. The first is for your monthly Professional Seller subscription and includes UK VAT. However, the second relates to a different Amazon service supplied by an overseas Amazon group company and does not include UK VAT.
Although both invoices relate to your Amazon business, they may require different VAT treatment in your accounting records.
This illustrates precisely why simply applying the same VAT treatment to every Amazon invoice can lead to errors.
Our Advice
One of the biggest mistakes we see is Amazon sellers downloading their settlement report and assuming every fee has the same VAT treatment. In reality, Amazon's invoicing arrangements can be more complex.
Taking a few minutes to review your invoices as part of your bookkeeping process can prove invaluable. It will help ensure your VAT records remain accurate and reduce the risk of issues later down the line.
When Do Amazon FBA Sellers Need to Register for VAT?
Unfortunately, there isn't a one-size-fits-all answer. For some businesses, the normal UK VAT registration rules will apply. Whereas for others, the way they use Amazon FBA may create VAT obligations much sooner than they expected.
Understanding the difference can save you from VAT issues and ensuing HMRC penalties at a later date. HMRC's general guidance on UK VAT registration can be found in VAT Notice 700.
Selling Products in the UK
If you're based in the UK and all of your stock is stored in UK fulfilment centres, your VAT position will usually be relatively straightforward.
Although, like any other UK business, you'll normally need to monitor your taxable turnover and register for VAT once you exceed the current UK VAT registration threshold, unless a specific exemption applies.
Some businesses choose to register voluntarily before reaching the threshold, particularly where they incur significant VAT on their business expenses and wish to recover that VAT.
Voluntary registration isn't suitable for every business. Consequently, you should consider both the advantages and any additional administrative responsibilities before registering.
What If Amazon Stores Your Stock Overseas?
This is where Amazon FBA VAT starts to become considerably more complicated.
Many sellers are surprised to discover that Amazon may store or transfer their inventory to fulfilment centres outside the UK if they've enrolled in certain international fulfilment programmes.
Although this can improve delivery times for customers, it can also create VAT obligations in the country where your goods are stored.
This is because many countries require businesses holding stock within their borders to register for VAT there, even if the business itself is based in the UK.
The precise rules vary between countries, so you should understand where Amazon is holding your inventory and whether any overseas VAT registrations are necessary.
Can Amazon Move Your Stock Without You Realising?
Potentially, yes.
An important question to ask yourself is: "Where are my goods sitting immediately before my customer clicks 'Buy Now'?"
If they're sitting in a UK fulfilment centre, the VAT position may be very different from a situation where they're already sitting in a warehouse in Germany, France or another European country.
Depending on the fulfilment programme you've signed up to, Amazon may move your products between fulfilment centres to improve availability and delivery performance.
Many sellers focus on increasing sales and improving delivery times, without realising that changes to their fulfilment arrangements can also affect their VAT obligations.
For that reason, it's sensible to review your Amazon fulfilment settings regularly and understand exactly which programmes you've enrolled in.
Selling to Customers in Europe Doesn't Always Mean You Need an EU VAT Registration
A common misconception is that simply selling products to customers in Europe automatically means you need to register for VAT in every European country you sell to. Fortunately, that isn't always the case.
The answer depends on several factors, including:
For example, if goods are dispatched directly from the UK to a customer overseas and the customer is responsible for importing those goods, simply making that sale won't necessarily require you to register for VAT in the customer's country.
However, if your goods are already stored in another country before they're sold, or you become the importer of record, the position can be very different. In those circumstances, a local VAT registration may be required, depending on the rules of that country.
The important point is that VAT registration isn't determined solely by where your customer is located. It also depends on where your goods are held and how they reach your customer.
This is why it's important to distinguish between selling goods internationally and holding stock internationally. Although the two often go hand in hand, they can have very different VAT implications.
We'll look at these rules in more detail later in this guide when we explain selling to Europe after Brexit, Pan-European FBA, import VAT and the deemed supplier rules.
Why Where Your Goods Are Stored Matters
One of the biggest misconceptions among Amazon sellers is that the VAT liability is determined solely by where their business is based or where their customers live.
If you dispatch every order from stock held in the UK, your VAT obligations will often be relatively straightforward. However, if some of your inventory is stored in another country before it's sold, different VAT rules may apply.
Why Inventory Location Matters
In reality, another key factor is where Amazon physically stores your goods when the sale takes place. This is one of the main reasons why Amazon FBA VAT can become more complex than for a traditional online retailer.
This can happen even if:
That's because, for VAT purposes, the location of your inventory can be just as important as the location of your business.
Why Does This Happen?
Amazon's fulfilment network is designed to get products to customers as quickly as possible. To achieve this, Amazon may store inventory in different fulfilment centres, depending on the fulfilment programme you've chosen and the markets you're selling into.
Commercially, this makes perfect sense.
However, from a VAT perspective, storing goods in another country can create additional tax obligations that wouldn't arise if your inventory remained in the UK. For this reason, it's important to understand not only where you're selling, but also where Amazon is storing your products.
Many Amazon sellers assume their VAT obligations depend solely on where their customers are located. In reality, where your goods are stored, who imports them into the destination country and how Amazon fulfils each order can all affect your VAT obligations. This is why two Amazon businesses with very similar sales can have very different VAT responsibilities.
| Scenario | UK VAT Position | Overseas VAT Position |
|---|---|---|
| Stock stored in the UK and sold to UK customers | Normal UK VAT rules apply. Registration is generally required once the current UK VAT registration threshold is exceeded (unless an exception applies). | None simply because the sale takes place in the UK. |
| Stock stored in the UK and dispatched directly to an EU customer | The UK VAT treatment depends on the circumstances of the sale. | May depend on who is the importer of record, the destination country and the applicable VAT rules. |
| Stock stored in an EU fulfilment centre before sale | Any existing UK VAT obligations continue where applicable. | Local VAT registration and reporting obligations may arise. |
| Pan-European FBA | UK VAT obligations continue where applicable. | VAT registration and reporting obligations may arise in one or more countries where Amazon stores your inventory. |
| Goods imported into the UK before being sold through Amazon | UK customs duties and import VAT should be considered. VAT-registered businesses may be able to recover import VAT where the normal conditions are met. | Additional overseas obligations may also arise if goods are imported into or stored in another country. |
Pan-European FBA
Amazon offers a number of international fulfilment programmes designed to improve delivery times for customers across Europe. One example is Pan-European FBA, under which Amazon may store your products in fulfilment centres across multiple European countries.
From a commercial perspective, this can be an excellent way to reduce delivery times and increase sales. However, from a VAT perspective, it's vital to understand exactly what you've signed up to.
Importantly, it isn't simply that you're selling to customers in Europe. It's that Amazon may physically your inventory in another country before the sale takes place.
Holding stock overseas can create local VAT obligations, even though your business is established in the UK. Therefore, before joining any international fulfilment programme, it's sensible to understand:
As mentioned previously, Amazon provides information about the fulfilment programmes you've enrolled in, so it's sensible to review these regularly as your business grows.
Selling to Europe After Brexit
Brexit significantly changed the VAT rules for UK businesses selling goods to customers in the European Union.
Although the UK has now left the EU VAT system, UK Amazon sellers can still trade successfully with customers across Europe. However, you should also consider how goods move between countries, where they're stored and who is responsible for importing them.
Depending on how your Amazon business operates, you may need to consider issues such as:
our supply chain and the way you sell your goods determine whether OSS or IOSS applies. These schemes can simplify VAT reporting in certain circumstances, although they won't be appropriate for every Amazon seller.
The rules can vary depending on the countries involved and the way your products are supplied, so it's important not to assume that every sale is treated in the same manner.
Import VAT
If you're importing goods into the UK before selling them through Amazon FBA, you may need to pay import VAT when those goods enter the country. Provided the normal conditions are met, VAT-registered businesses can usually recover import VAT as input tax on their VAT returns.
Many UK businesses also choose to use Postponed VAT Accounting (PVA). Rather than paying import VAT at the border and recovering it later, PVA allows eligible businesses to account for import VAT on their VAT return. This can improve cash flow by avoiding the need to fund the VAT upfront, although the normal conditions for recovery must still be met.
Keeping accurate import documentation is essential, as HMRC may request evidence to support any VAT recovery or the use of Postponed VAT Accounting.
Additionally, if you're importing goods into other countries before they're sold, different VAT rules may apply and local advice may be required.
The Deemed Supplier Rules
In some situations, the law may treat Amazon as the deemed supplier for VAT purposes. Where these rules apply, Amazon rather than the underlying seller may be responsible for accounting for the VAT on certain sales.
These rules are designed to simplify VAT collection for particular cross-border transactions and online marketplace sales. However, it's important not to assume they apply to every Amazon sale.
Broadly speaking, the deemed supplier rules can apply where goods are sold through an online marketplace, such as Amazon, in certain cross-border transactions. Where the rules apply, Amazon is treated as making the supply to the customer for VAT purposes and is responsible for accounting for the VAT on that sale. However, these rules only apply in specific circumstances and shouldn't be assumed to apply simply because you're selling through Amazon.
Whether Amazon is responsible for accounting for the VAT depends on the circumstances of the transaction, including where the goods are located, where they're being sold and the relevant VAT legislation.
Common Amazon FBA VAT Mistakes
Over the years, we've seen many Amazon sellers make the same VAT errors.
Some of the most common include:
Many businesses could avoid these mistakes by obtaining timely advice and maintaining robust bookkeeping procedures."
Frequently Asked Questions
Do Amazon FBA sellers always need to register for VAT?
No. Whether you need to register for VAT depends on a number of factors, including your taxable turnover, where your goods are stored and how your business operates.
Does Amazon account for VAT on my behalf?
Not usually.
Although Amazon may account for VAT on certain transactions under the deemed supplier rules, sellers ultimately remain responsible for understanding and meeting their own VAT obligations.
Can I reclaim VAT on Amazon's fees?
Potentially, yes.
If you're VAT registered and the normal conditions for recovering input tax are met, you may be able to recover VAT on qualifying Amazon business expenses. However, the correct treatment depends on the nature of the fee and the VAT shown on the relevant invoice.
What happens if Amazon stores my products overseas?
Storing inventory outside the UK may create additional VAT registration and reporting obligations in the country where the goods are held.
Therefore, before enrolling in international fulfilment programmes, it's prudent to understand the possible VAT implications.
Do I need to keep Amazon reports?
Yes.
Amazon provides valuable reports that can help support your accounting records. However, you should also retain invoices, import documentation and any other records needed to prepare accurate VAT returns and support VAT recovery
Amazon FBA VAT Explained – Key Takeaways
Selling through Amazon FBA offers significant commercial opportunities, but it also introduces VAT considerations that many traditional online retailers never encounter.
Understanding where your goods are stored, how Amazon's fees are treated, who is responsible for importing goods and when VAT registration may be required can make a significant difference to your compliance obligations.
While the rules may appear daunting at first, they're much easier to manage once your bookkeeping procedures are properly established and you understand how Amazon's fulfilment model works.
Obtaining timely advice can frequently prevent costly mistakes and allow you to focus on growing your business with confidence.
Need Help with Amazon FBA VAT?
Whether you're just starting to sell on Amazon or you're expanding into overseas markets, obtaining the right VAT advice at an early stage can save considerable time, money and unnecessary stress.
At The Friendly Accountants, we help Amazon sellers, e-commerce businesses and technology entrepreneurs understand their VAT obligations in plain English. From VAT registrations and bookkeeping to international trading and tax planning, we'll help you stay compliant while focusing on growing your business.
If you'd like to discuss your Amazon business or you're unsure whether your current VAT arrangements are correct, we'd be delighted to help.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.