Tax does not have to be Taxing!
Many sellers on Amazon, who are registered for VAT usually register for the Flat Rate Scheme to benefit from the reduced VAT percentage of 7.5% instead of the default 20%. Although the Flat Rate Scheme allows you to pay VAT at a lower rate than the default 20%, it does so at the expense of blocking potential VAT input claims on your purchases (except for certain capital assets over £2,000).
How does it affect UK sellers?
UK business would pay VAT on their purchases in most cases and would lose out any input claims for VAT on their purchases.
How does it affect overseas sellers?
Overseas sellers usually don’t have many expenses where they pay VAT which means they can benefit from using the Flat Rate Scheme without the worries faced by their UK counterparts.
Does Amazon charge VAT?
Amazon will not charge you VAT on their fees in the UK provided you have uploaded a valid UK VAT number on the Amazon portal but Amazon will charge VAT Sponsored Ads services (PPC campaign as some of us like to call it) and has been doing so since October 2018.
The issue and its solution!
With Amazon charging VAT on PPC campaigns, a lot of sellers lose out on a lot of money at the bleeding phase of their product launch, when they are desperately trying to undercut competitors and giving heavily discounted coupons to gain valuable reviews in their quest to come on the first page for their relevant keyword’s search option.
We recommend our clients to register for default rate VAT scheme at the time of launching their Amazon business/product. This is because at the bleeding stage of the product launch, the business’ sales are heavily discounted, and the overheads are high due to PPC charges. This means that in some cases you might be in a repayment position for VAT purposes! Therefore, do not rush into registering for the Flat Rate Scheme from the onset or at the time of launching a product. Instead wait for your product to first come on first page and become profitable before registering for Flat Rate Scheme.
Be very careful as to how and what scheme you use for VAT as once registered for Flat Rate Scheme and decide to switch to default scheme, you cannot rejoin the scheme until after 12 months have passed.