The last thing an e-commerce store owner would want to see is an e-mail instructing him or her to open a VAT file with the HMRC for future Value Added Tax (VAT) collection purposes. However, this is exactly the kind of e-mail many Amazon sellers received last year, and the requirement to open a VAT file and collect VAT payments have baffled the majority of e-commerce store owners listed on Amazon UK.
In general, the introduction of VAT for Amazon sellers in the UK has resulted in an uproar in the online selling community, but paying VAT is no longer an option, but a mandatory requirement for all UK based e-commerce sellers. In this light, this article takes a look at the VAT registration requirements for UK based Amazon sellers in detail.
VAT registration requirements for UK based Amazon sellers
Value Added Tax is charged on all orders sold by Amazon within the European Union, and for UK based sellers, the standard VAT rate calculation is applicable on all sales completed through Amazon. However, final VAT rate applicable will be calculated based on the end destination of the products or services sold on Amazon UK.
The same VAT structure applicable for goods and services sold physically in the UK applies to goods and services sold on Amazon as well, and VAT is applied on all digital product sales as well, which include the below.
(Source – Amazon)
In essence, any e-commerce seller based in the UK, whose annual turnover exceeds £85,000 should open a VAT file immediately to avoid being subject to fines from the HMRC.
VAT registration requirements for non-UK based Amazon sellers
For many years, taxes charged on products sold by international sellers in the UK remained a grey area, and this opened doors for many international sellers to evade taxes including VAT. However, there are stricter rules in place now, and the UK Finance Bill 2018 made it mandatory for international sellers to open a VAT file with the HMRC to report VAT if physical goods are stored in the UK for distribution.
International sellers who are using Amazon UK to sell products and services to UK customers could be categorized into two segments.
- An international seller whose goods are stored in UK at the point of sale
- An international seller who sells goods to UK based customers
- An international seller based in a European Union member state
It’s important to distinguish between these three categories as the regulatory implications are different for each of these categories.
All international sellers whose goods are stored in UK at the point of sale, or sell goods and services to UK based customers should open a VAT file immediately regardless of the value or volume of transactions. Therefore, all Chinese and other international sellers are required to open a VAT file as soon as they decide to store their goods in UK or sell a product or service to UK based customers. Amazon UK is not exempted from any of these rules and regulations, meaning it is mandatory for international sellers to open a VAT file to conduct any form of business in the United Kingdom.
For Amazon sellers based in other EU member states, the regulatory environment is a bit different from that of other international sellers. Essentially, a seller based in an EU member state should register to pay VAT if sales to UK customers exceed £70,000 per annum, which is commonly referred to as the distance selling threshold.
Amazon wants everyone to register for UK VAT regardless of minimum thresholds
As we discussed in the previous segment, there is no need for a small business to register with the HMRC to pay VAT if the seller is UK based and the annual turnover is below £85,000. However, Amazon has been aggressively pushing all sellers to register for UK VAT regardless of the minimum thresholds imposed by the HMRC, and this has raised many questions among small business owners who are at a loss as to why Amazon is deploying such an aggressive strategy.
The answer can be easily found by browsing through the latest laws enacted by the HMRC to hold online marketplaces liable to any tax frauds committed by sellers listed on their marketplaces. From March 15, 2018, HMRC has been legally empowered to hold online marketplaces liable for such fraudulent activities, and the HMRC has published many guidelines to be followed by online marketplaces including Amazon.
These guidelines include but not limited to;
- Obtaining a VAT registration number from all sellers listed on Amazon UK who are supposed to pay VAT
- Validating the obtained VAT registration number
- Validating and verifying the location of the seller
- Determining and validating the destination of end products and services
All these guidelines should be followed by Amazon, and this naturally makes the company vulnerable to tax frauds carried out by overseas sellers or UK based sellers who operate with the intention of avoiding VAT payments to the government.
The failure to comply with these guidelines might result in significant penalties imposed on Amazon by the HMRC, and to avoid such hefty penalties, Amazon is taking a more safer but aggressive measure by requesting all sellers listing their products and services on Amazon UK to register with the HMRC for VAT purposes.
What if you fail to provide a valid VAT registration number to Amazon?
The failure to comply with instructions provided to sellers by Amazon might result in the termination of such seller accounts, and Amazon has already done the necessary groundwork to expedite the VAT registration process of Amazon UK storeowners.
Below table should provide Amazon UK sellers with an idea on the penalties and fines that could be imposed on them for failure to open a VAT file with the HMRC and/or failure to provide regulators with accurate information.
(Source – Amazon Seller Central)
What is the progress made so far and the future outlook?
A recent Bloomberg report discussed how the HMRC has become a much more powerful unit over the last couple of years, and how this has helped the regulators crack-down on unlawful sellers operating on billion dollar marketplaces including Amazon.
According to HMRC, VAT registrations have grown from 27,550 a year ago to over 58,000 at present, which is proof of the recent success the regulators have had in getting online marketplaces to comply with applicable VAT rules.
In addition, the HMRC has already filed a number of cases against sellers who are accused of not complying with applicable rules despite several warnings.
Considering all available information regarding the radical changes implemented so far by the HMRC and online marketplaces including Amazon, it can be concluded that these changes are here to stay, and sellers should embrace these changes and adhere to regulatory requirements as soon as possible.