When Should an Amazon Seller Business Apply for VAT Registration in the UK?

VAT is applicable on the sale of the majority of the goods in the UK. Currently, the VAT rate is 20% on most of the goods that you sell on Amazon. But there are a few types of items that have 5% or even 0% VAT.

Any business that has revenue of more than £85,000 from Amazon in a 12-month period must register for VAT. Additionally, they should also charge VAT on the products they sell. This is a crucial part because you can only claim your VAT on the products if you are VAT-registered supplier.

As soon as you complete your VAT registration, you need to file for VAT returns after every three months. This return would show the amount of VAT you collected and the amount of VAT you paid. You should subtract the amount of VAT received from VAT paid and pay that figure to the government.

Why register for VAT?

You need to consider a few factors before deciding whether to register for VAT as an Amazon seller. Suppose you make nearly £80,000 a year from your yearly sales on Amazon. You are a part-time seller and you prefer to keep it that way. In that case, you may not want to become a VAT-registered Amazon seller at all. If you are happy with the part-time business, you can continue with it.

But most sellers, once they smell the success of selling online on Amazon, prefer to do it full-time. This makes VAT registration inevitable. Another factor that you should consider is your profit margin. Think of the profit you are making now and what you would make after your VAT registration. Take a look at all the products that you sell now and whether there would be able to sell them even after registering. Or maybe some of the products would fall in the 5% and 0% category.

Suppose you make a profit of 9% by selling goods worth £150,000. Is this better than the 12% tax that you pay when you sell £80,000 worth of goods? Or can you increase your sales to £200,000 and still pay 8 or 9%? Calculate these things first and decide in which zone you want to stay. If you think your sales would exceed £85,000, then you should definitely register for VAT.

VAT and profitability

Suppose you buy a product for £50 and sell it at £100. Now, the average VAT percentage is 20%. That means a seller who doesn’t have VAT registration makes a profit of £50 while the one who has VAT registration makes £40.

Apparently, this seems a profitable proposition for someone who doesn’t have VAT registration. But it also restricts your sale to £85,000. You can’t cross that figure if you don’t want to pay VAT. On the other hand, if you want to increase your sales, you would have to sacrifice that difference of £10 and look forward to making more so that the extra profit covers the amount you pay as VAT.

Expenses are also crucial because you can claim your VAT back, provided you have VAT registration. For example, you pay £8 as Amazon fees, £1 for prep centre cost, and £1 for other software costs. A VAT-registered seller can reduce the VAT’s impact on his profit margin by claiming £2 for every £10 worth of expense.

Now that you know the VAT rules for Amazon sellers in the UK, you should decide whether you should register your company for VAT or not. Ideally, if you want to see your business grow, you should complete the registration process and file the claims after every three months.