Amazon has announced that they are introducing sweeping VAT changes that will be coming into effect on 1st August 2024. In this article we will be looking at what those changes are and how they impact Amazon Sellers, especially from a UK VAT perspective.

Before we begin, there is a separate Amazon VOEC issue that has been happening for the past few months. We have helped a number of sellers overcome these issues, so if Amazon are withholding large amounts of VAT from your business and you need help, please check out that blog post and then get in touch.

What is changing contractually?

As you may have read in their recent communication, Amazon has announced that all of its services currently supplied by Amazon Services Europe S.a.r.l. (“ASE”) will move to being supplied by a different entity – Amazon EU S.a.r.l. (“AEU”). This change will take effect from 1 August 2024.

All agreements with ASE will automatically be novated to AEU, and all invoices currently issued by ASE will also start to become issued by AEU.

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High level summary

The key point of these changes which will impact Amazon sellers is that most of Amazon's charges across the UK and European platforms, including Selling fees (commissions) and FBA fees (delivery fees), will start to become subject to 20% UK VAT by Amazon. This VAT will be charged on top of Amazon’s fees falling into the scope of this change, and will be an additional deduction which Amazon will make from their settlement payments.

For Amazon sellers, this is likely to have a significant impact on your cashflow. As outlined below, it is currently not completely clear which marketplaces will be impacted for UK businesses, but you should be braced for this change to impact all UK and European marketplaces.

This means that Amazon are likely to start charging you 20% VAT on top of Selling and FBA fees across all UK and European marketplaces, which will be an additional deduction as outlined above.

Unfortunately, this is likely to cause a significant impact on your cashflows, particularly if you are already having difficulty with cashflows.

There are also further considerations for businesses on the VAT Flat Rate Scheme.

Please see more information below.
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Technical details – what is changing and why does this impact the VAT treatment?

Prior to the change announced by Amazon, all Selling fees and FBA fees relating to sales made through UK and other European marketplaces have been charged by Amazon Services Europe S.a.r.l. (“ASE”).  This is an Amazon entity established in Luxembourg and, according to Amazon, does not have a branch in any country other than Luxembourg (including the UK).

The fact that ASE does not have a branch anywhere other than Luxembourg was crucial for determining the VAT treatment of Amazon’s Selling fees and FBA fees. This is because the services supplied by ASE to UK businesses were (and are) treated as a B2B supply of services, supplied by a business established in Luxembourg (with no other branch or office) to a business established in the UK. Under VAT legislation, this meant that the “place of supply” of these service fees was determined to be in the country of the customer (i.e., where the Amazon seller is established – which, for UK businesses, would be the UK). Since ASE does not have a branch in the UK, it cannot technically charge the UK VAT on these services itself, so they have instead been subject to “reverse charge” by the UK Amazon sellers (i.e., by you).

The reverse charge mechanism is where your business effectively charges itself VAT on these types of Amazon's fees (and any other services received from overseas businesses), but then, crucially, it reclaims the same amount of VAT it has charged itself back as input VAT, via its VAT returns. Technically, the way the business charges itself VAT is effectively in the same manner as though it has made a sale. This means that the values of Box 1 (output VAT due to HMRC) and Box 6 (total value of sales) are both inflated by the value of “reverse charge” purchases made in the VAT quarter. At the same time, the value of Box 3 (input VAT reclaimable on purchases) is also inflated by the same value as the value of output VAT due in Box 1, meaning that there is no net impact of this on the VAT return.

Indeed, we often receive queries from clients about why the value of their sales according to Box 6 of the VAT return appears to be a lot higher than what they think their sales have been, and the explanation and reason is usually due to the reverse charge services.

Crucially, though, the reverse charge mechanism is essentially invisible to business owners (it’s typically something accountants deal with) and, beneficially to Amazon sellers prior to the upcoming change, it did not impact their cash position. Effectively, services which are subject to reverse charge are usually beneficial for cash flow, since the business doesn’t pay the VAT upfront to the supplier, but it instead both pays and deducts the VAT on the service in its VAT return (meaning that it is, more or less, invisible to most UK businesses).

However, the change announced by Amazon with respect to novating their UK and EU agreements from ASE to Amazon EU S.a.r.l. (“AEU”) is changing the above. The technical reason for this is because, as Amazon has noted in its communication, AEU does have branches in several other countries, including the UK, Germany, France, Italy, Spain, Netherlands, Poland, Belgium and Sweden.  Since AEU does have a UK branch, the Selling and FBA fees charged by this entity will simply be regarded as a UK B2B supply of services – effectively, they will be treated in the same manner as any other service that you may receive from a UK supplier.

This therefore means that Amazon is going to be charging 20% UK VAT on top of the service fees charged by AEU to UK businesses, rather than these fees being subject to reverse charge by the UK customer (as was the case under ASE). Effectively, it is all about the fact that AEU does have a UK branch, which therefore shifts the party which is responsible for VAT collection to being the Amazon entity make the charges.

This means that UK Amazon sellers will start to incur 20% VAT on top of all fees charged by AEU from 1 August 2024. This VAT will be an additional cashflow cost to your business, as Amazon will charge it on top of their fees, which means that it will be an additional deduction from the settlement payouts. Essentially, UK Amazon sellers will be paying additional 20% VAT on Amazon’s Seller and FBA fees each time a settlement period is closed and paid.

The UK VAT charged by Amazon will be treated in the same way as any other form of UK VAT that you may be charged by suppliers – i.e., it can be reclaimed as input VAT in your VAT returns.  However, this does not negate the fact that this change will have a significant impact on many Amazon sellers’ cashflow considerations.

Areas of uncertainty

One area of current uncertainty is which fees will be impacted by this change. More specifically, which marketplaces will be impacted.

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Amazon has noted that the change will impact all UK and European marketplaces. Effectively, it is likely to impact any of Amazon’s charges which have traditionally been invoiced by Amazon Services Europe S.a.r.l. (“ASE”). This would be all Seller fees and FBA fees on all UK and European marketplaces.

As such, you should brace for this change to impact all UK and EU fees charged by Amazon.

It is not clear whether Amazon may consider that the change of structure will only impact the domestic marketplace that the seller is established in. For example, if AEU would only charge UK VAT on the Amazon.co.uk marketplace fees, with other European marketplaces remaining subject to reverse charge. However, we consider that, based on Amazon’s communication and the associated VAT logic, it would be all UK and European marketplaces which would be impacted by this change.

Currently, our understanding is that these changes should only impact the UK and European marketplaces. We consider that North America marketplaces (and any other marketplaces you sell on, such as Australia, Japan, etc.) should not be impacted by this change.  This is on the basis that Amazon’s fees relating to these marketplaces are not currently charged by ASE, and should therefore not novate over to AEU either.

However, we should note that the position is not completely clear at the moment. If you have any doubts or concerns, you may consider raising an inquiry with Amazon. Unfortunately, we cannot communicate directly with Amazon ourselves, as we are not an Amazon seller and Amazon will only communicate directly with email addresses which are listed as the registered account holder.

Please note that despite the uncertainty, once these changes have been implemented, our team will be able to pick-up the actual changes that have occurred and will be able to handle our clients’ bookkeeping and VAT returns correctly.

Why is this change happening?

Although you may not have noticed, Amazon has changed its structuring before, including its invoicing structure. You may not have noticed when this has happened previously, because it likely hasn’t had much impact on your business.

Tax authorities across the world have been trying to keep up with the associated tax complexities of online selling and online marketplaces, and there have been other dramatic changes to tax policy and compliance made recently (for example, the shift to online marketplace tax collection on overseas sales).

It is difficult to be certain of the underlying reason for these changes, but it may be the case that Amazon have made this change as part of an overall agreement with the relevant tax authorities, in order to increase and assure VAT compliance for all Amazon sellers. Putting the onus onto Amazon to collect and pay VAT is often seen by tax authorities as a way to ensure increased compliance.

What does this mean for my VAT bill and my cashflow?

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For businesses on the standard VAT scheme, one piece of silver lining is that this change should not impact your net VAT position, compared to the comparable position prior to when the change is made. This is because any VAT paid to Amazon on the impacted service fees will be reclaimable in your VAT returns.  As outlined above, Amazon’s fees relating to UK and European marketplaces will essentially just be treated in the same way as any other UK B2B service which you may receive from a UK business. So, whilst VAT will be applied to the charges upfront, you can still reclaim this VAT as input tax on your VAT returns.

Other than for cashflow purposes, the position will be similar to as before. However, instead of having to charge yourself VAT via the reverse charge mechanism, you will instead be paying the VAT to Amazon upfront, which will then be reclaimable through your VAT return in the normal way.

In terms of what this will actually look like to you, the change should effectively decrease your quarterly VAT bills (based on comparable levels of sales and expenses prior to the change). This is because your business will be paying more VAT each month to Amazon upfront (via additional deductions to your settlement payouts), which will then be reclaimed on your UK VAT return. So you will have more VAT to reclaim on your VAT returns than prior to the change, but only because you will have paid this VAT up front to Amazon.

The big negative to this change, though, is that you will in effect be paying your VAT bill faster than before, which is why it isn’t great for cashflow. Effectively, you will be paying additional VAT on Amazon’s fees each time a settlement period is closed and paid to you, but the benefit side of reclaiming this VAT charged to you will come in the form of reduced VAT return liabilities, which are paid to HMRC after the VAT quarter has ended.

So, for cashflow purposes, you could be paying VAT on Amazon fees up to 3 or even 4 months before you can process the associated reclaim. Please note, though, that as long as your business is profitable and usually has VAT liabilities (rather than VAT reclaims), it is still going to be better to pay the VAT liabilities as close to the payment deadline as possible.

What about Amazon UK Advertising fees?

Amazon UK product advertising fees are already subject to 20% UK VAT, so there is no change here for UK businesses. The VAT will be paid to Amazon and then reclaimed via your UK VAT return.

The reason why UK advertising charges are already subject to 20% UK VAT is because they are invoiced by one of Amazon’s UK companies – Amazon Online UK Limited. So these costs are also just UK B2B supplies, with the supplier (Amazon) being responsible for charging and collecting the associated VAT.

What about the Flat Rate Scheme (FRS)?

If you are on the FRS, you are unable to reclaim input VAT (VAT paid on expenses).

The new changes being introduced by Amazon will increase your input VAT paid and, since FRS businesses cannot reclaim this VAT, it will have a very negative impact on businesses registered for the FRS.

Important: While these changes will have a negative effect for FRS sellers, it does not mean that you should definitely switch to the standard scheme. 

If you are a FRS business, we strongly recommend reviewing your situation and making a decision on which scheme is best ahead of time. If you are a client, please reach out to your account manager and we will let you know how we can help with this.

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Help with cashflow

If you are a client and you are concerned with the negative impact of this change on your cashflows, please reach out to your account manager and we will be able to advise and/or can put you in touch with one of the contacts in our network who can help.

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I am a bookkeeping/VAT client. Do I need to do anything?

No, if you are a bookkeeping client here at Ecommerce Accountants then we are already prepared for the changes and there is nothing that you need to do for us to continue handling your bookkeeping as usual. 

I am an ecommerce business looking for an accountant. What should I do?

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We are specialist accountants for ecommerce. If you are looking for an accountant to work with, you should get in touch with us and we’ll be happy to help.

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