New Amazon VAT charges: What UK sellers need to know

Amazon is implementing significant changes that will directly impact VAT Registered UK sellers. These changes, effective from 1 August 2024, relate to the VAT treatment on Amazon fees and invoicing. Amazon has a fast-growing base of sellers with an estimated 280,000 active seller in the UK. These changes are expected to impact many ecommerce businesses, particularly on their cashflow and bookkeeping requirements.

Paying VAT on Amazon Fees

Currently, UK sellers are not required to pay VAT on Amazon fees. However, from 1 August 2024, all Amazon fees will be subject to the standard 20% VAT rate. This includes referral fees, Fulfillment by Amazon (FBA) fees, and any other charges associated with selling on the platform. For those effected, the impact on cash flow is significant, as expenses related to Amazon fees will increase by 20%.

Amazon EU S.à r.l (AEU) invoicing changes

The reason for these changes is that Amazon has changed the legal entity which bills its fees from Amazon Services Europe S.à r.l (ASE) to Amazon EU S.à r.l.

If your business is established in countries where Amazon EU S.à r.l. (AEU) has a branch (including the UK), you will notice changes in invoicing. UK sellers will be invoiced by their local AEU branch. This means that local VAT rules will apply to Amazon fees. It is essential to keep track of these invoices and ensure compliance with VAT reporting requirements.

Bookkeeping Adjustments for Amazon sellers

UK sellers must make necessary adjustments in their bookkeeping systems. Previously, Amazon fees were accounted for using the Reverse Charge Expenses tax rate. However, with the recent changes, all Amazon fees will become taxable in the UK at the standard 20% VAT rate. Sellers should update their accounting software to reflect this change accurately.

If your business is UK VAT registered, you can reclaim this on your VAT returns to HMRC. However, if your business is not VAT registered, because you are below the £90,000 VAT threshold, your Amazon fees will increase by 20%.

Impact on consumers

While the direct impact of these changes on consumers is not immediately clear, it is important to note that VAT increases generally lead to higher prices for end consumers. This is because businesses often pass on the additional costs to their customers. However, the exact impact on consumers will depend on how Amazon sellers choose to respond to these changes.