Vat on amazon sales

#21

HMRC is happy to accept Excel as a calculation method for VAT even under MTD, but there needs to be bridging software that can take the information from Excel and submit it to HMRC.

“For example, a spreadsheet or other software product that is capable of recording and preserving digital records may not be able to perform the other 2 functions listed above, but can still be a component of functional compatible software if it is used together with one or more programs that do perform those functions.”
https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

#22

Thanks BarryM wasn’t aware of that, but I guess the question is why would you want to record it in Excel when you could input the data straight into the software and have it calculate everything by itself. Just seems like the accountant is creating a lot of work for himself and charging the client for his time.

#23

Because some accounting software costs more than the accountant would charge.

An Excel spreadsheet set up properly with free bridging software (https://vitaltax.uk/) and checked over by an accountant probably works out about the same, but has the added benefit that if the accountant messes up there will be a legal claim against the accountant. Using software without an accountant checking everything over, means there is likely to be no legal recourse as most software will have a term that exempts them from liability. (e.g. “Xero gives no warranty about the Services. Without limiting the foregoing, Xero does not warrant that the Services will meet Your requirements or that it will be suitable for any particular purpose.” https://www.xero.com/uk/about/legal/terms)

#24

Thank you for your response BarryM. I have to disagree in terms of cost because accounting software on subscription costs £20 - £30 a month. Based on what the seller has said he is going to his accountant I’m assuming every quarter and the accountant is calculating his VAT bill and submitting it. Any good accountant is going to charge £75 + vat simply to submit the bill to HMRC. On any given day even a small company could be generating upwards of 10 - 20 Vat related invoices basic expenses such as a toner for the printer, supplier invoices for product ordered. If I was to go to my accountant at the end of the quarter and present him with all of these VAT invoices plus on top of this around a dozen Amazon disbursements, which would have to be printed in detail + copies of any VAT statements Amazon have sent me, which if I’m trading in multiple marketplaces could be a lot. I would suspect he would be billing me in the region of £1,200 - £1,500. It’s much easier for the client to input data daily into the software and then have the accountant glance over it if you think it’s required.

The seller in this case has been using an accountant who’s using a spreadsheet and as a result he doesn’t have much understanding of how VAT works and what the accountant has been doing and by the sound of it may have being doing it incorrectly for the past 3 years.

#25

Xero: £24/mo for standard
A2X: $69/mo for standard (£57.32/mo)
Annual total: £975.85

For about £200 a year extra you get legal indemnity and someone to answer any queries you have about accounting. If you just dump all the invoices on your accountant then of course it’ll cost a lot more, but if you do the bookkeeping the way your accountant wants it done then it’ll be far easier (and cheaper) for them to do the returns and end of year accounts.

#26

End of year accounts are a separate matter to what I thought we we’re talking about. I was assuming here that this client was providing his accountant with VAT receipts every four months and sales data to calculate a VAT return. If the client is doing his own double book keeping then all the data he needs to complete a VAT return is already going to be in the software ready for submission… The accountant isn’t going to go back through every VAT receipt and double check all the entries as this would be the same as dumping it all on his desk. Therefore the accountant is taking all the raw data entered at face value. I don’t think we’re going to agree on this matter. Sellers use whatever the best method is for them. Like I said for us it’s best to use a2x and Xero and at the end of the year when the accountant does our end of year accounts he will be able to double check our VAT returns at the same time. If the raw data being entered into the accounting software is accurate there shouldn’t be any problems. You don’t have to use A2x you can do the raw data entry yourself and save £60 a month… but it’s so much easier to do it this way for £2 a day…

#27

That seems right to me, however I think we have been paying more than that. Will have to visit the accountants and clarify everything. We have had 3 accountants so far tell us that our VAT bill is wrong, one of whom was a former Amazon seller.

#28

Good luck with it TTB123. You never know you might have over paid VAT in the past few years and you might get a rebate.

#31

Err, i think you will find you should be paying £20 to Taxman (20% of £120 = £20) £14.40 to Amazon (12% of £120) so leaves you with £85.60

#32

When you mention fees that could mean a lot, for the referral fee Amazon will take the % of the full sale price (inclusive of VAT) e.g. for easy numbers lets say you sold something for £12, £10 is money you will be paid (before fees) and £2 is the VAT. Amazon will charge you the percentage of £12 not the £10 even though the £2 is VAT, unfair? probably but thats the way they do it.

As for accounting for fees - they fall into different categories and they may have different VAT rates, for example FBA/Referral fees are invoiced from Luxemburg, so they are reverse charged (https://www.avalara.com/vatlive/en/eu-vat-rules/eu-vat-returns/reverse-charge-on-eu-vat.html), whilst Sponsored Ads (for amazon.co.uk) are Vatable (e.g. you pay the VAT and can claim for it).

All of this is broken down on the settlements you receive by Amazon but can be notoriously difficult to understand. Also from experience, a LOT of accountants really do not understand how accounting and Amazon work, especially because of the way they invoice from Luxembourg and it gets worst if you are on Pan-EU.

Whilst I might be a bit biased (as I work for who I’m about to recommend) - you might want to checkout https://linkmybooks.com, built by a couple of 7 figure UK Amazon sellers who actually understand how it all fits together.

#33

I thought VAT was 20%. Wouldn’t VAT on £15 be £3? (15 x 0.2)

#34

He’s using VAT inclusive prices:

  • £15 total sale value (£12.50 + £2.50 VAT)
  • £10 purchase price (£8.33 + £1.67 VAT)
  • £2 fees (£1.67 + £0.33 VAT)
  • Profit £3 (£2.50 + £0.50 VAT)
#35

This is all confusing because of the phrase “VAT on Amazon Seller Fees.”
Here is the overview: I sell an item for £120. Since it’s VAT-inclusive, £20 of that is VAT, which I pay.

However, Amazon charges me commission on the whole sum, in my case, 17% or £20.4. Here is the tricky part: I am paying VAT on Amazon’s commission. However, since they are getting that money from me, as I understand it, they are ALSO paying VAT on it. So, HMRC is receiving that VAT tax twice.

With that in mind, I filed to reclaim the VAT I had paid on my Amazon Seller fees for the years 2015-2017. I did this with an HMRC form 652 (You can google it). I stated clearly what I was doing. In return, I received a refund for the entire amount: more than £6000. Interesting, eh?

Now it gets more interesting. After Amazon talked me into going Pan-EU with empty promises of tax compliance help (they did make good about 18 months late) I noticed that my new provider, an Amazon partner, was paying VAT tax on the gross sales, without removing Amazon Seller Fees. Multiply this by every marketplace, and you soon see that it’s quite a bit of money. In a conference with their manager, he told me clearly that VAT is paid on the gross sales amount, without accounting for commissions or shipping. So, I’ve been doing it like that the past year, but am still not convinced, since that

#36

since that £6300 refund was not a hallucination. Can anyone else weigh in on this?

Thanks!

#37

So there should be nothing tricky or confusing here.

There is VAT you pay, and VAT you collect.

If you make a sale to a UK customer you are required to collect 20% VAT on behalf of HMRC. So, all things being equal

You make a sale for £120.00 to a customer. That is the total they pay.

You have collected £20.00 VAT on that sale. (£100.00 product price, £20.00 VAT - 20%)

You then give that £20.00 you collected to HMRC.

On the transaction Amazon charge you 17%. So you pay Amazon £20.40 fees. VAT must also be charged to you - the customer of their service (VAT on sellers fees) on that £20.40 - and additional £4.08. They give that £4.08 to HMRC.

So VAT isn’t being paid twice as you put it, it is being paid for different transactions.

With VAT however, it is a tax on the end consumer - a consumption tax. This means that for normal VAT registered businesses you can offset any VAT that your company has paid out relating to the supply of goods or services to your customer against the VAT you have collected from them.

So in practice (and extremely simplified) your VAT return balances out to look like

VAT collected £20.40
VAT paid out £4.08
VAT owed to HMRC £16.32

Now in practice, the VAT treatment on Amazon is more complicated. Because they bill their sellers fees from another EU country, VAT regulations state that the VAT is actually zero’d on the invoice and you simply record its event on your own VAT filing without money changing hands for it. You can read up on it if you want to.

https://www.vatglobal.com/reporting-obligations-vat-guides/the-reverse-charge-mechanism

In summary, while VAT registered, if you have not been claiming back the VAT on Amazon seller fees as part of your VAT returns, or haven’t informed Amazon of your VAT number to implement reverse charge, then yes, you are correct to recover the VAT paid on seller’s fees.

This also doesn’t fully work the way I have written above if you are using the Flat Rate VAT scheme which is a different VAT model.

#38

Peter,

Thank you for reply. VATGlobal is my service provider and I have discussed this with them without being completely satisfied. Here is the crux of the dilemma:
When sell items, Amazon charges me a 17% commission. In fact, I never get paid that money: Amazon keeps it, as we all know. However, I AM paying VAT on the total amount of the sale, INCLUDING Amazon’s commission.
It seems to me that Amazon will also pay VAT on the commission they are charging me. In that case, I should be claiming Amazon’s commissions AGAINST my declared sales, because Amazon is, I presume, paying VAT on the commissions it charges me. That the logic I used when I filed a form 652 in the UK and got a substantial refund.
VATGlobal told me that since Amazon is not charging me VAT on the commissions it charges me, I have nothing to declare. Also, I was told (if I recall correctly) that Amazon has it worked out so that they don’t pay VAT on the commissions they collect, and so I have to be responsible for it.

This is the heart of the dilemma for me. Because, otherwise, I am truly paying VAT on Amazon’s income.

Please let me know if you have any insight into this. Thanks for your attention.

#39

If you download your sellers fees invoice from your tax documents library it will tell you straight away.

If you are being charged VAT on the sellers fees it will be itemised on the invoice.

If Amazon have your VAT number then the VAT should be zero’d and you are not being charged it.

#40

VAT is due on any consumer purchase of VATable goods. If a customer spends £120, then £20 is due to HMRC and the retailer is responsible for collecting and returning the funds. If the retailer is only paying £16.60 VAT from this sale, this must be incorrect. Even though you don’t receive the full £120, it is the amount paid by the consumer that is the VATable amount, just the same as a website sale paid by PayPal, Amex, etc., where the commission is deducted before settlement.
You seem to be contradicting yourself in consecutive paragraphs, saying Amazon also pays VAT, then say they don’t pay VAT on commission. If you have provided your VAT number, then reverse charge applies and Amazon will not charge or pay VAT on the commission. If you haven’t, then Amazon will charge and pay VAT (to Luxembourg government). You should be able to claim this back (is this what your previous 652 was for?), although this shouldn’t be on your quarterly VAT return as it is Luxembourg VAT, but many seem to do. Either way, VAT on the commission value has not been paid, unless you omitted to do one or the other, but not declaring the full sales value in not the way to correct this error.

#41

Thanks for responding. These issues are not extremely complicated, but they seem to get all mixed up because of the amount of overlap.

First, when I use the figure of 16.666%, that’s the amount of the total purchase price that is VAT. For example, $20 is 16.666% of $120, because VAT is inclusive. It’s just a quick calculation to figure out what percentage of your VAT-inclusive sale is actually VAT. A sale of $50 would be $8.33 VAT and $41.66 Purchase price.

As to the other issue: I know when I make a sale of 120, I owe 20 to HMRC. However, of that total sale of 120, 17% is commission, or 20.4. True, Amazon doesn’t charge me VAT on that.

However, I presume that when Amazon files its taxes with the various EU countries, it has to declare that 20.4 as income on a service, and so it has to pay VAT tax on it. So, I have paid VAT that included that 20.4 commission, and Amazon has also paid VAT on it when they file.

When I filed my form 652 with HMRC, I essentially deducted, en masse, all of those commissions that I paid. My logic was that when I paid that $20 VAT on that $120 sale, it included VAT on the $20.4 commission. And if Amazon pays VAT on that commission, which they should, I should be deducting the VAT I paid on their commission. That logic held, and I received a substantial refund.
So, I think in one box (Box 4?) of the return, Amazon seller fees should be deducted. I am by no means an accountant or VAT expert. Can anyone else corroborate this?

#42

There is your answer, if Amazon doesn’t charge VAT, then you can’t claim it back. Whatever Amazon does with the commission beyond the invoice you receive is not your concern and you can’t presume Amazon have paid VAT, or invisibly included VAT on your invoice. If you are claiming VAT without a paper trail showing where it was paid, you could be in big trouble if you are inspected.
As I said previously, if Amazon’s invoice states:
“VAT on this supply is to be accounted for by the customer (Article 44 service COUNCIL DIRECTIVE 2006/112/EC, Reverse charge applies in accordance
with Article 196 of COUNCIL DIRECTIVE 2006/112/EC).”
then Amazon have not charged you or paid VAT on the commission. In this case, you should add the value of what the VAT would have been @ 20% in box 1 and add the same value in box 4, which cancel each other out, net zero to pay or claim. The same applies to AdWords or Facebook adverts. eBay is different as they have a UK VAT number. Also some Amazon services (not sales commission) are invoiced with a UK VAT number, but the VAT value is shown on the invoice and can be claimed back in box 4.