If your business incurs Amazon fees, it may be worth reviewing how they are treated for VAT purposes. Changes introduced in August 2024 mean that the historic VAT approach may no longer be correct.
Nearly two years on, some businesses are still applying the previous treatment, resulting in VAT errors and missed opportunities to reclaim VAT correctly. A review of your accounting records and VAT returns could help identify any issues and ensure the correct treatment is being applied.
What changed?
From 1 August 2024, certain Amazon services began being supplied through a UK VAT-registered entity. As a result, UK VAT at the standard rate of 20% may now be charged on invoices for services that were previously treated as overseas supplies.
Prior to this change, many businesses accounted for VAT on Amazon fees using the reverse charge mechanism, whereby VAT was accounted for on the VAT return rather than being charged directly by Amazon.
Why is this important?
If your bookkeeping processes or accounting software have continued to apply the previous treatment, there is a risk that VAT is being accounted for incorrectly.
Common issues include:
- Continuing to apply the reverse charge where UK VAT is already being charged by Amazon;
- Double counting VAT on Amazon fees;
- Failing to reclaim input VAT charged on Amazon invoices; and
- Overlooking the need to reassess VAT registration requirements where previous registration was only triggered by the inclusion of Amazon reverse charge expenditure in taxable turnover. The changes may mean that VAT registration is no longer required.
For UK VAT-registered businesses, any UK VAT charged by Amazon can generally be reclaimed through your VAT return, this is subject to the normal rules regarding whether or not these expenses are being used by your business to make taxable (standard rated, reduced rated or zero rated) supplies. However, for businesses that are not VAT registered (for example, those below the £90,000 registration threshold), the 20% VAT charged on Amazon fees represents a real cost increase.
For businesses with significant Amazon advertising costs, fulfilment fees or seller account charges, the financial impact can quickly become material.
What should businesses do?
If you incur regular Amazon fees, it is worth reviewing:
- Recent Amazon invoices to determine whether UK VAT is being charged;
- Which Amazon entity is supplying the services;
- The VAT codes applied within your accounting software;
- Any automated bookkeeping rules or integrations;
- Previous VAT returns to identify whether any corrections may be required; and
- Whether you are required to remain VAT registered or whether VAT deregistration may now be appropriate.
Businesses that identify historic errors may need to make adjustments through future VAT returns or submit a VAT error correction to HMRC, depending on the circumstances.
How M+A Partners can help
Amazon’s change in VAT treatment serves as a reminder that supplier changes can have a direct impact on VAT accounting processes. Even where invoices continue to look broadly similar, the VAT treatment may have changed.
If your business incurs substantial Amazon fees and you have not reviewed the VAT treatment since August 2024, now may be a good time to check that your accounting records and VAT returns remain accurate.
If you would like assistance reviewing the VAT treatment of Amazon fees or correcting historic VAT errors, please get in touch with your usual M+A Partners’ contact or our experts below.
