Finally, you are here with Amazon VAT Accounting experts! When it comes to VAT for E commerce Sellers, there are important points to consider. ERAA Consulting Limited are expert accountants for E commerce Sellers. We are Amazon VAT accounting experts in the UK.
I set out below important points related to VAT registration for online sellers and VAT compliance for online sellers:
- The physical location of stocks at the time of sales
For the purposes of VAT, your goods are treated as being supplied according to the location of the stocks at the time of sales. For example, if your goods are sold from Amazon warehouses in the UK, then UK is the place of supply. Therefore, these will be counted when calculating the UK VAT registration threshold. If you need help on this please contact Amazon VAT Accounting experts
- What is the Turnover/Sales?
Remember, it is the gross amount which is called the Turnover/Sales, not the net received in the bank after deduction of merchant’s charges. I give you an example of Amazon FBA sellers. When customers buy goods from Amazon FBA sellers through Amazon’s online platform, the online sellers receive only the net amount after deduction of various Amazon fees. This net amount is used for bank reconciliation purposes and not for finding the turnover. The turnover or gross sales is the actual sales price charged to the end customer. Need to understand more? contact Amazon VAT Accounting experts
- What about the sales made to customers based in EU and export sales?
The sales made from UK stocks to these are also included in determining the UK VAT registration threshold. It does not matter whether those are Zero Rated, Reduced Rated or Standard Rated sales.
- Expanding your online selling business. In which country to register for VAT and where to submit the VAT returns for online sellers? Read more here
Again, the important point is the physical location of the stocks at the time of sales. As the VAT is EU wide tax, let’s consider the two possible scenarios for Amazon sellers here:
Scenario 1: You are selling goods from your UK stocks to non-VAT registered customers in another EU country.
This is the same if you are selling goods from your stocks in one EU country to customer based in other EU country. This is called Distance selling when goods are sold from a supplier in one EU member state to a non-VAT registered customer based in another member state. You may be thinking if there are any thresholds for compulsory VAT registration in this situation? Yes, indeed. There are. Until the business exceeds the relevant distance selling threshold of the EU state, the sales to private individuals and non-VAT registered businesses will be treated the same as UK domestic sales. It is, therefore, vital that you keep an eye on the sales to each member state throughout the calendar year. ERAA Consulting Limited can help you on this. Just ask!
Scenario 2: You are selling goods from your warehouse/or a third-party warehouse located locally and not in the UK. Let’ check the example of Amazon’s Pan European Fulfilment) where goods are dispatched form the local warehouses to local customers. This is really important consideration as UK online sellers are required to register immediately as these sales are not subject to the relevant EU member state’s VAT registration threshold as is the case with Scenario 1 above.
Therefore, in this scenario, the online sellers must register for local VAT, charge the customers local VAT and submit the local declaration/returns.
You must register for VAT if:
- you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period
- your business had a VAT taxable turnover of more than £85,000 over the last 12 months
- If you exceeded the VAT threshold in the past 12 months
You must register if, by the end of any month, your total VAT taxable turnover for the last 12 months was over £85,000. You have to register within 30 days of the end of the month when you went over the threshold.
Your effective date of registration is the first day of the second month after you go over the threshold.
During the 12 months period form 14 July 2019 to 15 July 2020, your Vatable turnover was £90,000. That is the first time it has gone over £85,0000, then you must register by 30 August 2020. The effective date of your VAT registration in this situation will be 1 September 2020.
- VAT on bringing goods to the UK
When you import/bring goods into the UK, you will have to pay import duty and import VAT. But don’t worry import duty is off set against the income of the business when we prepare the accounts. The import VAT is fully reclaimable if you are Standard Rate VAT registered business. HMRC issues a document called C79 to provide the monthly/periodical VAT charged on your imports. It is also important to note that this import VAT can’t be off set against your VAT bill if you are Flat Rate VAT registered.
- Standard Rate or Flat Rate VAT for Online Sellers
You may ask if Flat Rate VAT is any good for you? In order to decide on that we need to think along the lines of reduced administration but then unable to reclaim VAT on your normal business running/purchases costs, expected turnover limit to register of £150,000 etc. You may be attracted by the current Flat Rate VAT of 7.5% for retail businesses. What this effectively means is that you only have to pay 7.5% to HMRC rather than the normal 20%. But again, you need to consider the fact that you cannot claim back any VAT paid on costs/purchases and import VAT- except for certain capital assets over £2,000.
- Specific points for Amazon sellers in UK and other EU member states
UK-based Amazon FBA Seller:
Only need to register if your turnover exceeds the UK VAT registration threshold as explained above.
International and non-EU based Amazon FBA Seller:
You must register immediately as there is no threshold to reach before VAT registration becomes compulsory.
EU based Amazon seller:
You must register immediately if your stocks are stored in Amazon UK warehouses as there is no threshold to reach before VAT registration becomes compulsory. If your stocks are stored in your own/local EU country, then you need to consider the distance selling threshold. The UK distance selling threshold is £70,000. Please note this is not the same as the normal VAT registration threshold as explained above. If the annual value of your distance sales into the UK and the Isle of Man is less than the distance selling threshold, you charge VAT at the rate that applies in your own country. You will also account for the VAT in your own country.
If the value of your distance sales goes over the limit, then you have to register for UK VAT. You then charge VAT on your VAT taxable sales at the UK rate instead of using your own country’s rate and account for it in the UK.
You can apply to register for UK VAT as a distance seller voluntarily, even if you do not exceed the threshold.
- What is VAT Cash Accounting Scheme? And what is VAT Accrual Accounting Scheme?
Cash accounting is where, in your VAT return calculations, you only include sales and purchases/costs and VAT when the money physically flows through the business. Whereas in accrual accounting you need to include VAT on all transactions irrespective of the timing of money flow. For example, a sales transaction occurred in a VAT return period between 1.4.2020 to 30.6.2020, but the customers pay you on 5 July 2020, that means in cash accounting you will include this transaction in the next VAT return period, i e quarter end 30.9.2020. Same is for expenses.
On the other hand, you need to include this transaction in the quarter end 30.6.2020 under accrual accounting scheme. Fee free to Contact Amazon VAT Accounting experts