Vat on amazon sales

#1

Hello everyone,
We are confused on how our VAT bill should be calculated. At the moment our accountant is using the amazon fees as an expense and not a cost of business. This means that our VAT bill is very high, pretty much equivalent to our margins. We end up breaking even at the end of the quarter. It seems wrong to us we are selling alongside other people, who sometimes sell cheaper than us on the same product, so are wondering how are they are making profit.

For example -
We do £50000 sale
Approx 23% fees - £11500
According to our accountant we have to also pay 20% VAT on the fees on top of this.
This then makes the fees add up to roughly 28% of our sale.

Is this right? Please let us know.

EDIT - We are VAT registered.

#2

23% seems very high to me, but it depends on the categories that you are selling in. All my goods are at either 7% or 12%. Best input your ASINs at https://sellercentral.amazon.co.uk/hz/fba/profitabilitycalculator/index?lang=en_GB to confirm the fees you are paying.

The fees are a percentage of the total retail cost, so will include VAT. i.e. an item that costs £100+VAT will retail at £120, with (say) 12% going to Amazon in fees. So we earn £105.60 (£120-12%), of which £88 is ours and £17.60 goes to the taxman as VAT.

You then need to deduct your cost of sales, shipping, insurance etc. Obviously FBM and FBA will have different cost structures - the calculator can help with that.

As to how others sell more cheaply - they’re either doing massive volume, have means to acquire the goods more cheaply (e.g. via liquidations or as imports) or are simply making a loss.

#3

If you are VAT registered then you should have your VAT number registered with Amazon. Once it is registered they will zero the VAT on the fees as it is an intra EU supply.

Regardless it is an input VAT charge, meaning that if you are on regular accounting you can reclaim the VAT when you file your account (or in practice you are offsetting it against your output VAT liability on goods sold) You cannot do this if you are on the Flat Rate scheme however.

#4

I have checked on the website and the items i am selling all are 12% fees.

#5

Are you selling FBA - are these also the fulfilment fees?

#6

To put it simply,
We buy an item for £10
We sell it for £15
The accountant says we made a profit of £5 so you must pay vat on that
We say we made a profit of £3 because we also paid £2 fees. So we should pay VAT on the £3.

#7

We also sell fba but this does not include the fulfillment fees.

#8

You’ll pay VAT on the £15 item you sell

#9

You accountant is right, you pay VAT on what it retails for. we treat Amazon as commission so there fees comes out of the profit, as do other expenses rent fuel etc.

#10

Your selling price should be Cost + Markup + Amazons fees , then + VAT, that is how you make a profit, (but only if your markup is enough.

#11

As far as I understand it your accountant is calculating on reverse charge there, usually used when selling on used items that HMRC have allowed such as used cars and mobile phones. If you’re on a standard VAT scheme the way your accountant is doing it is not correct.

#12

I think this has more or less been pointed out but I think there is a small conceptual difficulty here

Strictly speaking VAT is paid by the final customer, not by the business who is just a collector. VAT is paid on the whole value of the retail price including any separate charge for packing and postage . The costs of the retailer which include postage, packing, fees and the original costs of the good have no bearing on the VAT paid by the final customer. Although a business can reclaim the VAT on the goods and costs that she has incurred.

So in your example of the £15 item the customer will pay £2.50 VAT remitted by you

But you will reclaim £1.67 VAT if you paid your supplier £10 for the goods and also any VAT on postage and packing materials etc As Amazon fees are charged exclusive of VAT for registered businesses there is no VAT you can reclaim on them- although when filling out the return there is a bit of malarkey involving reverse charges-

A company that is not registered for VAT does not have to remit the VAT paid by the customer. So if your competitors have turnover of less than £85k and are UK based they might have a competitive advantage although partially offset by the increased fees they pay to Amazon which will be charged inclusive of VAT to them. Of course their stock will be costing them more- in your example another £1.67

#13

I have sent our accounts to another accountant and they have also stated that the vat bill is wrong. They said our accountant uses an excel spreadsheet which is easy to make errors on. If this is true then we have been paying the wrong VAT for almost 3 years.

#14

You most definitely didn’t make a £5 profit and you VAT has been submitted incorrectly for 3 years.

VAT is calculated on the total sale amount so a sale for £15 would result in £2.50 VAT being owed.

At this point you are left with £12.50

Amazon fees are also calculated on the total sale amount so if the fee is 15% you would be paying Amazon £2.25

At this point you are left with £10.25

You now need to buy the item for £10.00 so at best you made £0.25p but you then have to deduct all the other costs such as postage and packaging or FBA fees depending on how you are fulfilling the order so you have actually made a loss unless somehow the item can be packed and shipped for less than £0.25p

#15

Yes to your thrust, but the cost of the £10 item is probably £8.33, so its not quite that bad

#16

Let’s hope we can get that money back from HMRC.

#17

What money back from HMRC?

The VAT on Amazon fees is not actually charged by Amazon (assuming you put your VAT number in to Amazon) and this has to be accounted for on a VAT return as a reverse charge.

(If you are VAT registered and supply Amazon with your VAT registration details and they will stop charging you VAT under the Reverse Charge scheme. You need to put this through as reverse charges on your VAT return though so it shows VAT charged on sales and then the equal amount reclaimed on purchases.)

A: If the item costs £10 inc vat (£1.67) the actual item net cost is £8.33 the math is then:

Sell £15.00 (inc £2.50 vat) so the net sale is £12.50 - £8.33 = £4.17 net profit - £1.80 fees @ 12% = £2.37 net profit - Packing and Shipping or FBA fees

B: If the item costs £10 plus vat (£2.00) the item net cost is £10.00 the math is then:

Sell £15.00 (inc £2.50 vat) so the net sale is £12.50 - £10.00 = £2.50 net profit - £1.80 fees @ 12% = £0.70 net profit - Packing and Shipping or FBA fees

Even if the items net cost is £8.33 leaving £2.37 before either shipping/packing or FBA Fulfilment Fees are deducted i would think there is next to no profit if any so if the item is sold via FBA and is a Standard parcel: Dimensions ≤ 45X34X26cm

< 0.25kg £2.02
< 0.5kg £2.14
< 1kg £2.30
< 1.5kg £2.45

If the item weighs less than 400 grams the fee would be £2.02 or £2.14 so at best you would be left with 25p profit, if it weighed under 900 grams you would be left with 7p profit and if it weighed over 1kg you would be loosing money.

If the item is Small Oversize: Dimensions ≤ 61X46X46cm, Packaging Weight 240g the charges start at £3.82 so your loosing money on every sale.

#18

Your accountant could be correct if your VAT number has been registered with Amazon.

Buy £10 (of which £1.67 is VAT)
Sell £15 (of which £2.50 is VAT)
Fees £1.80 but is under the reverse charge system so VAT of £0.36 needs paying, but can be claimed back as an input.

£2.50 - £1.67 + £0.36 - £0.36 = £0.83 VAT
VAT payable on £5 profit is £0.83.

#19

VAT is a tax which you must charge on all VAT rated products. For example, if your charging £15 for a product your share of this is £12.50. The other £2.50 is VAT to be paid to HMRC. When calculating your margins you should also work with figures minus VAT to give you a clearer picture. But remember VAT is a two way street. If you buy an item for say £10, £1.67 on that is VAT. So when you submit your VAT return to HMRC you should be claming back the £1.67 for buying the item inclusive of VAT and then your paying out £2.50 as you resold the item with VAT.

Supplier charges you £10 (£1.67 vat)
You sell it for £15 (£2.50 vat)
Therefore we do a calculation of £2.50 minus £1.67 credit = £0.83p difference to be paid to HMRC

This system works for any expenses or stock you buy as long as you have a valid VAT receipt from the supplier or expense.

With regards to your accountant to be honest you shouldn’t need one for Amazon sales and VAT. We spend less then 2 minutes each quarter on our VAT return. We use a2x which is a 3rd party piece of software. It takes your Amazon payments, which for us is every 2 weeks, it takes the payment Amazon send us plus all the other information, so for example any fee’s, adverts, tax’s, and breaks this down. It then sends this to our accounting software, Xero. Xero shows the Amazon payment, which we then link to the bank deposit. It also creates an invoice for expenses. So if we sold £10,000 it credits us with that amount of money. If we spent £2,000 on fee’s and adverts it creates an invoice for that amount. We then go into our account statement, which is shown in the Xero software, and select the £10,000 in sales, minus the £2,000 invoice and link it to a £8,000 bank deposit. At then end of the quarter we go into Xero’s Vat section. It will say your VAT bill is due. We click on submit and it sends it to HMRC. And basically what it’s done there it’s taken all the Amazon sales (minus any refunds) and the tax is set at 20% VAT. So once this is setup you only have to click a button 4 times a year then login to HMRC website and pay the bill or setup a direct debit to avoid even doing that.

FLAT RATE SCHEME

Also remember the flat rate scheme! So many sellers our there don’t get told about this. If your business is taking under £150,000 per 12 rolling months you can go onto the flat rate scheme. This works really well if your products are high margin or you have low expenses. With the flat rate scheme you charge customers 20% vat as normal, however, when you submit your vat return you pay HMRC a reduced rate, normally 7.5% for this type of selling. So you’d be rating the other 12.5% that was charged. You can’t, however, claim back any VAT. So, for example, if you buy a toilet brush for £1 and sell it for £100 you’d rather not claim the limited vat back on the £1 and keep the 12.5% on the £100… You can opt in as long as your taking below £150,000 per rolling 12 months (not per year! A lot of people think it’s per tax year but it’s a 12 month roller… so you have to monitor it in blocks of 12 months) and you can stay on the scheme until you go over £230,000 per year… this figure includes vat.

#20

Your accountant should not be using excel to calculate vat! HMRC is moving to make everything Digital so everything needs to be recorded in accounting software as it will be the software that submits VAT returns to HMRC. Y