Amazon's New VAT Changes: What UK Sellers Need to Know

Amazon is rolling out significant changes starting from 1 August 2024 that will directly impact VAT-registered UK sellers. These changes pertain to the VAT treatment on Amazon fees and invoicing, and they’re expected to have a notable effect on many eCommerce businesses, especially in terms of cash flow and bookkeeping. As Amazon continues to grow its seller base—now estimated at around 280,000 active sellers in the UK—it's crucial for sellers to understand how these changes will affect their operations.

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VAT on Amazon Fees: What’s Changing?

Until now, UK sellers have enjoyed a VAT exemption on Amazon fees. However, beginning on 1 August 2024, all Amazon fees will be subject to the standard 20% VAT rate. This includes referral fees, Fulfilment by Amazon (FBA) fees, and any other charges associated with selling on the platform. For many businesses, this will lead to a substantial increase in costs, directly impacting their cash flow as expenses related to Amazon fees will rise by 20%.

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Bookkeeping Adjustments for Amazon Sellers

These changes mean that UK sellers will need to make adjustments to their bookkeeping practices. Previously, Amazon fees were accounted for using the Reverse Charge Expenses tax rate. Now, with the new VAT treatment, all Amazon fees will be taxed in the UK at the standard 20% VAT rate. Sellers should update their accounting software and systems accordingly to reflect this change and ensure accuracy in their financial records.

If your business is VAT-registered, you’ll be able to reclaim this VAT on your returns to HMRC. However, for businesses not registered for VAT—because they fall below the £90,000 VAT threshold—these changes mean your Amazon fees will increase by 20%, without the option to reclaim VAT, making it even more crucial to review your pricing strategies.

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Potential Impact on Consumers

While the direct impact of these changes on consumers is still uncertain, it’s worth noting that VAT increases often lead to higher prices for end customers. Many businesses choose to pass on the additional costs associated with VAT to their customers. However, how Amazon sellers decide to handle this will vary, and the overall impact on consumer pricing will depend on their individual strategies.

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Conclusion

The upcoming VAT changes by Amazon are poised to bring about significant shifts for UK sellers, affecting everything from cash flow to compliance. With the new rules set to take effect on 1 August 2024, now is the time for sellers to review their financial strategies, update their bookkeeping systems, and consider the potential impacts on their customers. Staying informed and proactive will be key to navigating these changes successfully.

For tailored advice on how these changes may affect your business, and to ensure your accounting practices are up to date, feel free to contact our team of experts here at Gow and Partners.

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