[Disclaimer: The team at A2X are happy to provide users with technical assistance in applying tax rules to their A2X setup. We are not Tax Advisors and so our advice and suggestions on the application of tax rules cannot be construed as tax advice. We highly recommend that users seek advice from qualified accountants for their tax compliance.]
When you are selling in Amazon UK and EU you can have the Amazon VAT calculation service enabled or disabled and it will affect how your Amazon settlement data is imported to A2X.
This article is intended to give an overview of how to use A2X to account for VAT on sales and refunds in the context of two scenarios, with the calculaotr enabled or without it. We will show you how the data appears in A2X, and how you can assign tax rates to the transactions.
Scenario 1: Amazon's VAT calculation service is turned on
Amazon’s VAT Calculation Service is turned on in the client’s Amazon Seller Central account. The key benefit is that your client can now do VAT-free transactions with other businesses, which raises visibility (Amazon business, B2B sales). Displaying VAT on prices also provides credibility to the seller.
If this service is enabled, it means that the sales on Amazon are having VAT calculated and charged to the customer, then reported to you as separate transaction lines in the settlement.
With the VAT calculation service enabled, you will see:
So it’s a £120 total sale, with 20% VAT, but now Amazon has split the VAT out. In Xero/QBO in order to still have the correct VAT liability, you would code both lines to the sales account, and run the VAT rate 20% over both lines.
Sales £100 - account: sales - tax rate 20% Inclusive
Tax £20 - account: sales - tax rate 20% Inclusive
This will mean the liability in Xero is still going to show £100 of sales, £20 of VAT - it’s just come in on 2 line items because of the way Amazon split it.
Scenario 2: Amazon's VAT calculation service is turned off
In an Amazon account without the VAT calculation service, you would expect to see data in the settlement like this:
Sales £120 - account: sales - tax rate 20% Inclusive
You would code that to the sales account, with the VAT rate of 20%.
In Xero/QBO it will be treated as £100 of sales, and £20 of VAT.
Please note the following information regarding the Amazon VAT Calculation service:
The Amazon Calculation Service relies on you configuring the correct tax types for your products, if you get these wrong your VAT will be under collected (or over collected) and this can have an impact on your tax return. It's vital you review your Amazon tax configuration with your tax adviser.
If you have one VAT rate, you can use the Amazon VAT Calculation Service. If you have both one rate + 0% rate, you can also use the Amazon VAT Calculation Service and use the A2X Product Type functionality to enable you to apply the two different VAT rates (0% and 20%).
In some cases it may be easier and less confusing for sellers to disable the VAT calculation service. You should consider whether the benefits for your business outweigh the additional accounting complexity.