Amazon UK VAT Changes: What You Need To Know

Amazon has announced significant changes to their VAT policies effective from August 1, 2024. This article will detail these changes and their implications for Amazon sellers, particularly from a UK VAT perspective.

Additionally, there has been an ongoing Amazon VOEC issue affecting many sellers in recent months. If Amazon is withholding substantial VAT from your business, we can help. Please refer to our blog post on the matter and get in touch.

What is Changing Contractually?

Amazon has communicated that from August 1, 2024, all services currently provided by Amazon Services Europe S.a.r.l. (ASE) will be transferred to Amazon EU S.a.r.l. (AEU). This shift means all agreements with ASE will automatically transfer to AEU, and all invoices previously issued by ASE will now come from AEU.

High-Level Summary

The main change impacting Amazon sellers is that most of Amazon’s charges across the UK and European platforms, including selling fees and FBA fees, will now be subject to 20% UK VAT. This VAT will be added to Amazon’s fees and deducted from settlement payments, significantly affecting sellers’ cash flow. It’s currently unclear which marketplaces will be affected, but it is expected to impact all UK and European marketplaces.

Technical Details – What is Changing and Why?

Previously, Amazon’s selling fees and FBA fees for UK and European sales were charged by ASE, a Luxembourg-based entity without branches in other countries, including the UK. This meant UK businesses used the reverse charge mechanism for VAT, where they accounted for both the input and output VAT, which had no net cash impact.
With the change to AEU, which has branches in several countries including the UK, these fees will now be treated as a direct UK B2B supply of services. Consequently, Amazon will charge 20% UK VAT on top of their fees, impacting sellers’ cash flow as this VAT will be deducted from settlement payouts.

Areas of Uncertainty

The exact fees and marketplaces affected by this change remain uncertain. While it is expected to impact all UK and European marketplaces, it is not clear if this will extend to other regions such as North America, Australia, or Japan. Sellers are advised to seek clarification from Amazon if there are doubts.

Why is this Change Happening?

Amazon has previously restructured its invoicing practices, likely to ensure better VAT compliance in agreement with tax authorities. This change might be part of broader efforts to enhance VAT compliance by shifting VAT collection responsibilities to Amazon.

Impact on VAT Bill and Cashflow

For businesses on the standard VAT scheme, the change should not affect the net VAT position as VAT paid to Amazon will be reclaimable. However, it will impact cash flow as businesses will pay VAT to Amazon upfront and reclaim it later through VAT returns, potentially leading to a lag of up to three or four months between payment and reclaim.

Impact on Amazon UK Advertising Fees

There is no change for Amazon UK advertising fees, which are already subject to 20% UK VAT.

Impact on the VAT Flat Rate Scheme (FRS)

Businesses on the FRS, which cannot reclaim input VAT, will see a negative impact from increased VAT payments due to these changes. FRS businesses should review their situation and consider if switching to the standard VAT scheme is beneficial.

Help with Cashflow

Clients concerned about cash flow impacts should contact their account manager for advice or referrals to our network of financial contacts.

For Bookkeeping/VAT Clients

If you are a bookkeeping client with Ecommerce Accountants, no action is needed. We are prepared for these changes and will handle your bookkeeping as usual.

For Ecommerce Businesses Seeking an Accountant

We specialize in accounting for ecommerce businesses. If you need an accountant, please get in touch with us for assistance.

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