Amazon has unveiled significant updates to its VAT policies, set to take effect on August 1, 2024. This article will explain these changes and how they may affect Amazon sellers, particularly with regard to UK VAT regulations.

In addition, many sellers have been facing ongoing issues with Amazon’s VOEC system. If Amazon is withholding a substantial amount of VAT from your business, we can assist. Check out our blog for more information and feel free to reach out to us.

What’s Changing in Terms of Contracts?

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

Key Highlights

The most significant change for Amazon sellers is that most fees, including selling and FBA fees, across UK and European platforms, will now be subject to 20% UK VAT. This VAT will be added to the fees Amazon charges, and deducted from settlement payouts, which could significantly impact sellers’ cash flow. While it is expected to affect all UK and European marketplaces, the exact marketplaces impacted remain unclear.

Technical Details – Why the Change?

Until now, Amazon’s selling fees and FBA fees for UK and European sales were processed by ASE, a Luxembourg-based entity without branches in the UK or other countries. As a result, UK businesses used the reverse charge mechanism for VAT, where they accounted for both input and output VAT, with no net cash impact. With the transition to AEU, which operates in several countries, including the UK, these fees will now be treated as a direct UK B2B service supply. Consequently, Amazon will apply a 20% UK VAT on top of its fees, which will be deducted from your settlement payments, affecting your cash flow.

Areas of Uncertainty

The full extent of the changes is still unclear. Although it’s expected to impact all UK and European marketplaces, it remains uncertain whether it will extend to other regions, such as North America, Australia, or Japan. If there is any uncertainty, sellers should seek clarification directly from Amazon.

Why Is This Happening?

Amazon has recently overhauled its invoicing practices, likely to comply more effectively with VAT regulations and tax authorities. This move might be part of broader efforts to improve VAT compliance by shifting VAT collection responsibilities to Amazon.

Impact on VAT and Cashflow

For businesses operating under the standard VAT scheme, the change should not alter the overall VAT position, as VAT paid to Amazon can still be reclaimed. However, it will affect cash flow, since VAT will need to be paid upfront to Amazon and reclaimed later through VAT returns, potentially causing a delay of up to three or four months between payment and refund.

Impact on Amazon UK Advertising Fees

There will be no changes to Amazon UK advertising fees, as these fees are already subject to 20% UK VAT.

Impact on the VAT Flat Rate Scheme (FRS)

Businesses using the VAT Flat Rate Scheme (FRS), who cannot reclaim input VAT, will experience a negative impact due to increased VAT payments. These businesses should review their VAT strategy and consider switching to the standard VAT scheme if it would be more beneficial.

Help with Cashflow

If you’re concerned about how these changes will affect your cash flow, please contact your account manager for advice or to be referred to our network of financial professionals.

For Bookkeeping/VAT Clients

For clients with Ecommerce Accountants, no action is needed. We are already preparing for these changes and will continue to manage your bookkeeping as usual.

For Ecommerce Businesses Seeking an Accountant

We specialize in accounting for eCommerce businesses. If you’re in need of an accountant, don’t hesitate to reach out for assistance.