Integrate Amazon and your accounting software for accurate accounting

Integrate Amazon and your accounting software for accurate accounting

A2X auto-categorizes your Amazon sales, fees, taxes, and more into accurate summaries that reconcile perfectly in your general ledger, saving you hours.


Try A2X today

The Ultimate VAT Guide for Amazon Sellers in UK and Europe

What Amazon sellers need to know about UK and EU VAT

It’s important for Amazon sellers trading into or within the UK and Europe to have a basic understanding of VAT (Value-Added Tax) because it is a regulatory necessity.

Understanding VAT is also a critical component of strategic financial planning, operational efficiency, and maintaining a competitive and compliant business.

In this guide, we’ll break down what Amazon sellers need to know about VAT from an accounting perspective.

Important: A2X does not provide VAT or tax advice. The information provided in this guide is general in nature. Please consult a local tax advisor to understand VAT as it applies to your business.

Integrate Amazon and your accounting software for accurate accounting

A2X auto-categorizes your Amazon sales, fees, taxes, and more into accurate summaries that make reconciliation in your general ledger a breeze.

Try A2X today
Amazon integration (no GL)


An introduction to VAT

VAT (Value-Added Tax) is a consumption tax added to the value of goods and services, which must be collected and remitted by the sellers as part of their sales transactions in these regions.

Like sales tax and GST, VAT is paid by consumers. Unlike sales tax and GST, however, it is added at each stage of the supply chain.

According to Claire Taylor, CEO of, VAT gets charged whenever “value” is added in the supply chain. For example, when a supplier of raw materials sells goods to a manufacturer, VAT is added to the sale. VAT is added once again on the sale from the manufacturer to the wholesaler, and from the wholesaler to the retailer, and from the retailer to the consumer.

VAT is designed to be paid by the end-user, although it is collected and managed by the companies that make up the supply chain, from the manufacturer to the retailer.

In the UK, the standard VAT rate is 20%, which applies to most goods and services. However, some goods and services have reduced rate of 5%, are exempt, or are zero-rated for VAT purposes. See here for more information about UK VAT rates.

In the EU, VAT rates vary by member state. See here for more information about EU VAT rates.

How does VAT work?

If a business is required to collect VAT, the process typically goes like this:

  • For companies buying goods or services, they will pay VAT on top of the purchase price. The supplier will need to remit that VAT to its relevant tax authority.
  • If a customer buys goods or services from a company, they will also pay VAT on the purchase price. The company will remit the VAT to its relevant tax authority.
  • The tax authorities will set out how often entities need to file the VAT they have collected. This is usually monthly or quarterly, and depending on where the company operates, they might need to do this with more than one tax authority.
  • A company could either owe VAT or be owed a VAT refund, depending on whether their output VAT (VAT on sales) is greater or less than their input VAT (VAT on purchases).

For example: If a company in the UK charges £2000 of VAT on products sold, but pays £1000 of VAT on purchases made, then they would still owe HMRC £1000 in VAT.

VAT passes through the collector.

This is a simplified example. In the case of ecommerce in particular, things can get a little more complicated.

What is the main difference between sales tax and VAT?

As Thomson Reuters explains: Sales tax is collected by the retailer when the final sale in the supply chain is reached via a sale to the end consumer. End consumers pay the sales tax on their purchases. Businesses issue resale certificates to their sellers when buying business supplies/inputs that will be resold since sales tax is not due. Tax jurisdictions do not receive the tax revenue until the sale is made to the final consumer.

By contrast, VAT is charged at every stage along the supply chain, and the amount of VAT that any one company pays to the government is the difference between their VAT received on income and VAT paid on purchases.

In this manner, tax jurisdictions receive tax revenue at every stage of the supply chain rather than being required to wait until the final sale to the end consumer.

While sales tax reporting requirements in the United States are triggered by nexus, the need to register for VAT is triggered by similar circumstances (but they aren’t commonly called nexus in Europe). More specifically, these circumstances are:

  • Having a permanent establishment or inventory stored in a jurisdiction.
  • Passing the distance selling threshold for the destination country.

For more information about the differences between sales tax and VAT, see this guide by Thomson Reuters.

Notable changes to VAT in the UK and EU

Changes in legislation in the United Kingdom and Europe have had a significant impact on Amazon sellers who sell across the UK and Europe. Although some of these changes have been in place for a few years now, it’s important to keep them in mind since they outline who needs to file VAT and the requirements for filing.

Making Tax Digital (MTD)

Making Tax Digital (MTD) is a major change to the administration of the UK tax system that Her Majesty’s Revenue and Customers (HMRC) launched in 2019 to integrate and digitize tax submissions.

To be compliant with MTD regulations, you need to:

  1. Check if and when you have to follow the rules. If you have a VAT-registered business, you are required to keep digital records and file tax returns using compatible software.
  2. Get the right software (Xero, QuickBooks Online, and Sage are compatible).
  3. Charge, reclaim, and record VAT and practice ongoing compliance.

MTD compliance for Amazon sellers: Daily reporting vs. Settlement periods

As part of MTD’s digital record-keeping requirements, MTD outlines that transactions must be reported on a daily basis. However, Amazon and Shopify both provide their daily sales data in settlement periods.

HMRC acknowledges the difficulties involved in trying to clarify daily sales where a third party provides information in settlement periods. Therefore, our understanding is that it’s okay to report sales on a settlement basis in your VAT returns. However, if you are unsure of how this applies to you, it’s worth asking your accountant.

It’s important for Amazon sellers to keep the following in mind when it comes to MTD compliance:

  • Digital record-keeping – Under MTD, you are required to keep digital records. This means using compatible software that can record and report the necessary VAT information, even if the underlying data is based on settlement periods.
  • Accuracy and completeness – Ensure that all transactions within the settlement period are accurately and completely recorded. The total value of sales and VAT collected during this period should be correctly reflected in your VAT returns.
  • Reconciliation – Regularly reconcile your accounts to ensure that the sales data reported in your VAT returns matches the records provided by Amazon and Shopify.


As a result of Brexit (the UK exiting the EU), several changes were introduced throughout 2020-2021 that impacted Amazon sellers. At a high-level, some of these changes include:

  • Sellers need separate EORI numbers for importing goods to the EU and the UK
  • Amazon sellers need to register their brands separately in the UK and EU
  • Introduction of the EU VAT Ecommerce Package (see below)

The 2021 Ecommerce VAT Package

On July 1, 2021, the 2021 Ecommerce VAT Package was introduced in the EU to facilitate easier VAT compliance for businesses selling goods online and to ensure VAT is paid where the consumers are located.

As part of the package, a few key changes for sellers took place:

  1. There is now one micro-selling exemption of €10,000 across the EU.
  2. Sellers can centralize their VAT returns with the OSS system.
  3. Sellers can ensure a quicker, smoother customs experience with the IOSS system.
  4. There are new marketplace facilitator obligations, leaving much of the VAT collection responsibility with the platforms themselves (Marketplace Facilitator VAT/Tax).

One micro-selling exemption: €10,000

Distance selling occurs when a business sells and ships products to customers in another country directly, typically via online platforms like Amazon. This method contrasts with having a physical store or local entity in the customer’s country.

Prior to July 1, 2021, EU countries had individual distance selling thresholds. If an Amazon seller’s sales in a particular EU country exceeded that country’s threshold, the seller had to register for VAT and charge VAT at the rate of the customer’s country.

However, the 2021 Ecommerce VAT Package introduced a new micro-selling threshold of €10,000. Note that there are some exceptions to this (e.g., if you are a non-EU seller selling into the EU, you may need to register for IOSS before reaching the threshold) – consult with a VAT expert to understand your obligations.

One Stop Shop (OSS)

The 2021 Ecommerce VAT Package also introduced the One Stop Shop (OSS) system, which simplifies VAT obligations for distance sellers within the EU.

Businesses based within the EU that engage in cross-border sales of goods and services to consumers in other EU member states may use the OSS to declare and pay VAT. It allows sellers to report and pay VAT for all EU sales through a single return in one EU member state, rather than registering in each EU country where they sell.

However, it is important to note that sellers in the EU must register for VAT wherever inventory is stored.

Import One Stop Shop (IOSS)

Import One Stop Shop (IOSS) is similar to OSS, but applicable to businesses selling goods online to consumers in the EU from outside the EU.

Sellers from outside the EU can register for the IOSS in any EU Member State. If they do not have a business establishment in the EU, they must appoint an EU-established intermediary to fulfill their VAT obligations under the IOSS.

Marketplace Facilitator VAT (MFV)

Marketplace Facilitator VAT (MFV) refers to the VAT collection and remittance responsibilities assumed by online marketplaces like Amazon for transactions made through their platform.

Traditionally, individual sellers were responsible for collecting and remitting VAT for their sales. However, to streamline VAT collection and reduce tax evasion, many jurisdictions now require marketplace facilitators to handle VAT on transactions made through their platforms.

How MFV is applied in the UK and EU:

  • In the UK: Following Brexit, the UK government implemented rules that require online marketplaces to collect and remit VAT for goods sold to UK consumers by overseas sellers. This includes goods located in the UK at the point of sale valued at up to £135 and, in some cases, goods located outside the UK at the point of sale.
  • In the EU: Similar rules have been implemented in the EU. For example, as part of the 2021 Ecommerce VAT Package, online marketplaces are deemed to be the supplier for VAT purposes for certain transactions. This typically includes cross-border sales of goods within the EU up to a value of €150 and, in some cases, for goods imported into the EU where the consignment value does not exceed €150.

The Marketplace Facilitator VAT rules can reduce the administrative impact on Amazon sellers, since individual sellers do not need to collect and remit VAT themselves for transactions where Amazon is responsible for VAT.

However, Marketplace Facilitator VAT does not imply that Amazon sellers should consider their VAT obligations automatically covered. Sellers still need to manage VAT obligations for transactions not covered by the marketplace facilitator rules, such as sales exceeding certain value thresholds or goods sold from stock stored in an EU country to consumers in the same country.

Similarly, sellers must maintain accurate records and comply with reporting requirements for their sales, including those where VAT is handled by the marketplace.

Registering for VAT

Register for VAT where you store stock in the EU

If you store stock in a country that is a member state of the EU, you are generally required to register for VAT in that country.

This applies regardless of your sales volume. For example, if a UK-based Amazon seller uses Amazon’s FBA (Fulfillment by Amazon) service and chooses to store stock in a warehouse in Germany, the seller must register for VAT in Germany.

This also applies regardless of whether or not you are registered for OSS or IOSS.

Once registered, you need to comply with the local VAT rules. This includes charging VAT at the appropriate rate for that country on sales to customers in that country and adhering to the specific filing and documentation requirements.

Sellers should also be aware that moving stock between EU member states can be complex, and moving goods between the UK and EU will likely involve import VAT and potentially customs duties.

Maintaining detailed records of stock movements, sales, VAT collected, and VAT paid in each country is crucial. This ensures accurate VAT reporting and can aid in audits or inspections. (Read on to learn how A2X can help maintain accurate financial records.)

If your business is located in the country where you are registering for VAT, then you may be able to sell products without needing to register for VAT until you reach a certain level of turnover. Often, Amazon will require you to register before you sell on the platform.

Can you sell on Amazon without registering for VAT in the EU or UK?

Amazon will usually require sellers to provide a VAT registration number.

This is so that Amazon can adhere to Marketplace Facilitator VAT legislation – i.e., when marketplace facilitators like Amazon are required to collect and remit VAT on behalf of their sellers for certain transactions. Ensuring that sellers are VAT-registered helps Amazon manage these obligations effectively.

By having sellers VAT registered, Amazon can also help to assure customers that they are buying from legitimate and compliant businesses, and promote fair competition among sellers (as businesses that evade VAT can unfairly undercut prices, which can put compliant sellers at a disadvantage).

Calculating VAT

Amazon VAT Calculation Service

Amazon offers a VAT Calculation Service (VCS) that can automatically calculate, collect, and remit VAT on sales made through Amazon, depending on the seller’s settings and the nature of the transaction. However, the ultimate responsibility for VAT compliance rests with the seller.

It’s important to understand if you have VCS enabled so that you are accounting for tax correctly (and sending over correct VAT information when using a tool such as A2X to integrate Amazon and your accounting software).

To see if you have VCS enabled in your Amazon account, click here.

Calculating VAT and customs duties when importing goods

If you’re based outside of the EU or UK and planning to import products to sell in the EU or UK, when those products are imported you will need to pay both VAT and customs duties on the products.

Here’s a breakdown on what these payments are and how to calculate them.

Customs duties: This is a tax charged on all products being brought into the EU or UK. Its purpose is to bring the cost of imported goods up to the same cost of goods produced within the EU and UK, to keep competition fair. Customs duties are calculated as a percentage of the cost, insurance, and freight (CIF) value.

To understand customs duties for a particular product, you need to find the trade tariff for the specific product(s) you’re importing. Ask your manufacturer for the commodities code to make this process easier. For example, we want to import 600 t-shirts to the UK. Using the government Trade Tariff website, we discover the trade tariff for clothing is 12%.

To calculate your CIF value, you need to add the value of your goods + shipping + insurance = CIF value. This should be done in pounds, not USD, so if you have paid dollars make sure you work out what that comes to in GBP using the HMRC exchange rate. Here’s how you would calculate the CIF value using our t-shirt example: £3000 (value of goods) + £900 (shipping) + £300 (insurance) = £4200.

Finally, your duties payable = CIF value x duties rate. In our example, this is 4200 x 0.12 = 504, so we owe £504 in duties.

VAT: As we know, this is a sales tax charged on all products bought in the EU or UK. VAT is calculated at different percentage rates depending on the country you’re importing to. Continuing our example above, we’re importing our t-shirts to the UK, so VAT would be calculated at 20% of the total value (total value = value of goods + shipping + duties + other costs).

Remitting VAT

Is Amazon responsible for VAT collection and remittance?

Under Marketplace Facilitator rules, Amazon must collect and remit VAT on behalf of sellers for certain transactions in the UK and EU (see the ‘Marketplace Facilitator VAT’ section above for details).

In these instances, buyers will see the VAT added at checkout, and Amazon will collect and manage it for you.

You will still need to keep track of how much VAT has been remitted for record-keeping purposes.

How can I tell how much VAT Amazon has remitted?

Amazon provides reports that detail how much VAT has been remitted.

The best report to see VAT on sales is the Amazon VAT Transactions Report. You can find this by going to Amazon Seller Central > Reports > Fulfillment by Amazon > Tax (left sidebar) > Amazon VAT Transactions Report.

The best report to see VAT on expenses is the Tax Document Library. You can find this by going to Amazon Seller Central > Reports > Tax Document Library. In the Tax Document Library, sellers can also find all the invoices that relate to their Amazon expenses (usually FBA fees, seller fees, advertising fees, etc.).

To get to Amazon’s monthly overview report (that shows sales and expenses side-by-side and ties back to A2X’s monthly report), you do the following:

  1. On the Amazon Seller Central Account Page, hover over the ‘Payments’ drop-down, and click on ‘Reports Repository’.

  2. Select the details as applicable. Select ‘Custom Date Range’ if you need a different report range or other than a specific month.

  3. Click ‘Request Report’.


How do I keep Amazon VAT records?

Registering for VAT means that you need to keep records of all sales and purchases, including dates, amounts, VAT rates applied, and VAT amounts collected or paid. You’ll also need to store invoices and receipts for all transactions, as these are essential for VAT reporting and audits.

One of the best (and MTD compliant) ways to keep business records is using accounting software that can handle VAT calculations and generate VAT-related reports.

When accounting software is integrated with A2X, you can automate much of the record-keeping process, ensuring accuracy and efficiency.

Filing VAT returns

Once you are registered for VAT in the UK or EU, you must file regular VAT returns.

For UK sellers: Regular VAT returns (usually quarterly) must be submitted to HMRC using the HMRC portal. These returns should detail your sales and purchases, the VAT collected from customers, and the VAT paid on your business expenses.

For EU sellers: VAT returns must be filed in each country where you’re registered, typically on a monthly or quarterly basis, via OSS or IOSS. The OSS scheme allows for a single quarterly return for all EU sales.

You can choose to file yourself, work with a professional, or use Amazon’s VAT services.

Regardless of the method you use to file, you will need to keep records to ensure your numbers are accurate. You can get accurate records by regularly bookkeeping accounting for VAT.

Accounting for Amazon VAT

You might be thinking: “If Amazon remits VAT under Marketplace Facilitator rules, why does it matter that I capture VAT in my accounting and bookkeeping?”

Even if you rely on Marketplace Facilitator rules, Amazon’s VAT Calculation Service, and even Amazon’s VAT management services, there’s no way around it – you’ll still need to do accounting.

Accurately accounting for VAT is important for several additional reasons.

  1. You are still responsible for reporting on VAT and keeping accurate business records – The EU and UK have specific VAT rules that businesses must adhere to. Proper bookkeeping helps ensure compliance with these regulations, and can help you avoid penalties and fines.


  2. You want to make sure you are not overpaying or underpaying VAT – Proper accounting ensures accurate calculation of VAT owed to, or reclaimable from, tax authorities.


  3. Your business should be prepared in the event of an audit – In the event of a VAT audit by tax authorities, well-maintained records can facilitate a smoother audit process and reduce the risk of discrepancies. Detailed and organized records serve as confirmation of compliance with VAT laws.


  4. You’ll get more accurate insight into your business’s cash flow and financial position – VAT can significantly impact a business’s cash position, so understanding VAT liabilities and refunds is vital for effective cash flow management. Accurate bookkeeping allows for better financial planning and budgeting, especially when taking into account VAT costs and refunds.

But, getting accurate numbers can be difficult – and there are a few things that Amazon sellers should keep in mind when accounting for VAT.

Don’t record your Amazon deposit as income

Amazon sellers will be familiar with the fact that they get paid via a deposit from Amazon approximately every two weeks. What they might not know, however, is that this sum is not just made up of sales – it’s actually a combination of sales, fees, refunds, VAT, and other transactions.

Therefore, recording your entire Amazon deposit as income is incorrect – and can cause VAT compliance issues, as well as over or understating your profit margins.

Fortunately, this is exactly how A2X can help with your Amazon accounting.

Amazon deposits are made up of more than just sales

Amazon VAT transactions

There are various different types of transactions that make up an Amazon deposit, and also various VAT transactions (especially if you’re selling on multiple marketplaces).

A2X will identify VAT transactions for you so you can accurately reconcile your Amazon payout.

For example, A2X can distinguish the following transactions:

  • Principal - jurisdiction GB (Order ItemPrice) – In this example, an Amazon sale was made through, and is taxable in the GB (United Kingdom) jurisdiction.
  • Principal - jurisdiction GB NoTax Export (Order ItemPrice) – In this example, an order was exported outside the EU, so no VAT was charged. Amazon recorded the tax jurisdiction as GB (United Kingdom).

Understanding the distinction between these two types of VAT transactions (and capturing them in your accounting) is important. The former refers to domestic sales within the UK, where VAT is applicable. The latter, “NoTax Export”, indicates sales made to customers outside the UK where UK VAT doesn’t apply.

Being able to identify and correctly account for different Amazon VAT transactions will help you to:

  • Comply with tax laws (both local and international) and have an audit trail in place
  • Generate accurate financial reports
  • Reclaim VAT, where applicable
  • Develop effective pricing strategies
  • Be ready to adapt to any changes in tax laws

A2X VAT mapping

Get a step-by-step guide for how to set up A2X for Amazon VAT here.

A2X can help you automate how you categorize your VAT transactions to your Chart of Accounts – check out the examples below.

Example 1: For an Amazon seller with no VAT registration(s)

A2X VAT Mapping Page – For an Amazon seller with no VAT registration(s)


Example 2: For an Amazon seller with 1 UK VAT registration

A2X Accounts & VAT Mapping Page – For an Amazon seller with 1 UK VAT registration

Example 3: For an Amazon seller with 1 UK VAT registration plus 1 or more EU VAT registration(s)

Note: You have the option to split out additional countries for separate VAT treatment, wherever helpful.

A2X Accounts & VAT Mapping Page – For an Amazon seller with 1 UK VAT registration plus 1 or more EU VAT registration(s)


Accounting and record-keeping for VAT

UK VAT transactions

When using A2X, transactions indicating taxable sales are categorized to a revenue account with a 20% VAT on income rate applied.

Example of the A2X Accounts & VAT Mapping Page with VAT rates applied


MFV and VAT/tax on other country sales

When a tax transaction triggers Marketplace Facilitator Tax rules, you will see it clearly described “MFV’’ for “Marketplace Facilitator VAT” or MFT for “Marketplace Facilitator Tax”. This allows you to separate out the MFV and MFT transactions and send them to a dedicated current liability account on your Balance Sheet.

When an Amazon seller collects VAT from customers, they are doing so as an agent for the tax authority. This VAT doesn’t belong to the seller but to the government, so it is not (and should not be) considered part of the business’s earnings. It’s classified as a ‘current liability’ because it is typically due to be paid to the tax authorities within a short time frame (usually monthly or quarterly).

When Marketplace Facilitator VAT applies (i.e., Amazon collects and remits VAT on the seller’s behalf), it’s still important for Amazon sellers to record VAT collected because it will affect how sellers record and report their revenues and taxes in their financial statements and tax returns.

Tracking Marketplace Facilitator VAT is also important for financial auditing and in cases where tax authorities request evidence of sales and VAT collection.

Accounting for Amazon expenses

For most businesses in the UK and EU, most Amazon expenses (e.g., Amazon subscription fees, commission fees, etc.) will be Reverse Charge expenses because Amazon generally bills from Luxembourg. As such, sellers don’t have to pay VAT upfront and then reclaim it later; they simply report it in their VAT return, which is why it’s so important to record correctly in your accounting records. (Read more about the Reverse Charge mechanism in the FAQs below).

However, UK Advertising Fees are normally billed from the UK, which means that the Reverse Charge mechanism does not apply. This means that Amazon sellers will have to pay VAT on advertising fees upfront, and then keep records of the transaction so that you can reclaim the VAT later.

Important: Make sure you check the Amazon Tax Document Library in Seller Central, where you can find invoices that check for the correct tax rates.

Step-by-step Amazon accounting guide

For a step-by-step guide to Amazon accounting using Xero, watch this video featuring Elver Ecommerce Accountants.



How A2X makes VAT accounting easy

Diagram showing how A2X gathers deposit data from Amazon then organizes it into accurate summaries that reconcile perfectly in QuickBooks, Xero, or Sage


A2X can integrate Amazon with Xero, Sage, or QuickBooks Online. A2X will capture all VAT transactions, and organize your Amazon payout data into accurate summaries that reconcile perfectly with your deposits in your accounting software.

Learn more about how A2X works to make Amazon accounting easy in this video.


For Amazon accounting, A2X is the gold standard to automate away the headaches of data entry. Try it out at your Amazon business – set up a free trial now.

Frequently asked questions about VAT

Will VAT reduce my profit margin?

If you have set up your VAT correctly in Seller Central, then it will not reduce your profit margin, as the costs are passed on to customers.

Here are a couple of scenarios to consider:

  1. Your business is based in the UK, and registered for VAT. In this instance, you will charge VAT on products sold and pay VAT on all purchases. The total amount of VAT that you pay is the difference between your income and expenses.
  2. Your business is based in the UK, but you haven’t passed the VAT registration threshold (so you aren’t registered for VAT yet). If you are in this position, you’ll need to pay VAT on your expenses, but will not be able to charge VAT on your sales.

Either way, your profit margin should remain the same if VAT is factored into your income and expenses.

For example: You sell a product for £10, and it cost you £5.

  • If you’re not registered for VAT, your income is £10 and your cost of goods sold is £5. Therefore, your profit margin is 50% (£5/£10).
  • If you are registered for VAT, you’ll need to pay £1.67 (£10 - £10/1.2) in VAT, which makes your net income £8.33. However, you are also able to claim £0.83 (£5 - £5/1.2) VAT from the cost of your purchase, making your cost of goods sold £4.17. Therefore, your profit margin is 50% (£4.17/£8.33).

Does Amazon charge VAT on seller fees?

Yes, Amazon does charge VAT on seller fees. For your referral fees and monthly professional account charges, there will be an amount of VAT paid, which corresponds to the percentage rate in your country.

However, if you have provided Amazon with a VAT number (and they have verified it), you will not be charged VAT. Instead, you’ll be required to declare the expenses on your tax returns through the reverse charge mechanism.

What is the reverse charge mechanism?

The reverse charge mechanism is a way to handle VAT in business-to-business transactions that helps to prevent fraud, and simplifies the process of paying VAT tax.

When the buyer is a business, and also the consumer (i.e., they aren’t on-selling the product or service being transacted), any VAT charged will eventually be refunded as a claimable expense.

So instead of paying the VAT, then claiming it back at tax time, the reverse charge mechanism removes the need to pay the VAT in the first place. In the majority of transactions, suppliers act as a tax middleman where they collect tax from the buyer and pass it onto the government. The reverse charge mechanism is designed to cut out this step.

With the reverse charge mechanism, the responsibility for paying VAT shifts from the seller to the buyer.

In practice, it looks something like this:

  1. When the transaction takes place, the buyer provides the seller with their VAT number.
  2. The seller verifies that the VAT number is valid and that they are a legitimate trading entity.
  3. Once verified, the transaction takes place as normal but there is no VAT charged or paid.
  4. In the buyer’s VAT return, they declare their purchase (input VAT) and the supplier’s sale (output VAT), which essentially cancels out each other from a cash payments point of view.

For more information about the reverse charge mechanism, and how to use it in your business, check out this guide.

How long do I need to keep VAT records for?

For most online sellers, you’ll need to keep your VAT records for 6 years. However, there are some circumstances where you need to hold onto records for a longer period.

If you have signed up to the MOSS (Mini One Stop Shop) system, you’ll need to hold onto VAT records for 10 years. If your business also owns land and buildings, you might need to keep VAT records for 20 years.

However, the general rule is that holding onto VAT records for 6 years is suitable. Unless they suspect fraud, the HMRC can only go back four years to issue assessments, penalties and interest.

While such a period of time might seem like forever, there is an easier way to stay on top of your books – use automation and apps to keep your records accurate and tidy as you go.

A2X is an accounting app that connects your Amazon Seller Central account with Xero, QuickBooks Online, or Sage and ensures that your income, selling fees and cost of goods sold are accurately recorded for future reference.

Can I still use A2X if I’m eligible for a special VAT scheme?

Some UK Amazon sellers are, for various reasons, registered on a different type of VAT scheme with special requirements.

For example: Some sellers are part of a Flat Rate Scheme where they do not claim relief on any of their purchases or expenses but they get to pay a reduced flat rate of VAT on all their sales.

If you are in a scheme like this, you can still use A2X. However, we recommend reviewing the setup with your accountant to make sure that it satisfies all of the requirements for your particular scheme.

What is the VAT flat rate scheme?

For UK businesses with a turnover of less than £150,000 per year, there is another way to look after your VAT returns.

In essence, you pay a flat rate of VAT on your sales (which is lower than the standard rate), but you aren’t able to claim back VAT on purchases.

Visit this page for more information about the VAT flat rate scheme.

A2X helps make accounting for VAT easy! Sign up for a free trial today.

Integrate Amazon and your accounting software for accurate accounting

A2X auto-categorizes your Amazon sales, fees, taxes, and more into accurate summaries that make reconciliation in your general ledger a breeze.

Try A2X today
Amazon integration (no GL)

More Topics

The Fundamentals

The Fundamentals

Sales Tax for Ecommerce

Sales Tax for Ecommerce

Amazon Accounting

Amazon Accounting