Disclaimer: You may have many different scenarios within your business, this guide is purely for informational purposes rather than tax guidance. What is described in this guide may not suit your business tax accounting needs, therefore, you should always seek tax advice from your accountant or tax adviser.
Background
In July 2024, Amazon announced a change in the VAT treatment of fees for UK sellers, that would come into effect from 1 August 2024.
Initially, it appeared that all Amazon FBA fees across the EU/UK would be subject to 20% VAT. However, after reviewing the invoices for August across multiple sellers, we’ve noted the following on UK accounts:
Merchant Seller Fees invoices generally include VAT at 20% for all marketplaces, with the exception of Amazon.com.tr and Amazon.pl which generally include local VAT
FBA Fees: UK accounts that sell into the EU/ROW and use FBA are generally seeing two invoices for FBA fees, one Zero-Rated and one with 20% VAT on Expenses
Additional Credit Notes and Invoices for the August 2024 period. During the transition period, Amazon has issued several credit notes and back-dated invoices in some seller accounts, covering earlier periods with different tax treatments. For example, an FBA fee from July 1st would be categorized as a Reverse Charge Expense. As a result, sellers with FBA invoices may encounter mixed tax rates on the same types of fees during the August 2024 period
What does this mean for my August and September numbers?
The variance in VAT treatment for FBA fees across different marketplaces introduces complexity to the bookkeeping process. This means you may require a further adjustment for VAT on FBA fees, merchant seller fees, subscription fees, and Amazon shipping fees (excluding third-party shipping providers) for August and September entries.
You might have credit notes and back-dated invoices that relate to the period prior to August 2024.
You could be experiencing a split between domestic GB FBA fees and international FBA fees.
As it is not possible to apply two different tax rates to the same transaction at one time in A2X, we suggest using a workaround method. This approach should allow your data to come within an immaterial difference of the total VAT reported by Amazon. The A2X Customer Success team is available to assist you with this process. You can book a dedicated support call via this link.
Although this method may seem more thorough than necessary, we recommend it to ensure the accuracy and credibility of your data for the August and September period.
We also advise consulting with your accountant, bookkeeper, or VAT advisor, as these changes may affect your business differently.
What is the workaround method for August and September?
The recommended workaround is to post all amounts for FBA fees, merchant seller fees, subscription fees, and Amazon Shipping fees (excluding third-party shipping providers) to a clearing account. From there, you can raise individual invoices from the Amazon Tax Document Library as bills in your accounting system, paying careful attention to the tax treatment on each invoice.
If you follow the whole process the debits and the credits in the clearing account should offset each other (or come within an immaterial difference of offsetting). This approach will give you the confidence that the VAT has been properly accounted for through the transition period.
Below are step-by-step instructions. You can also book a call with A2X Customer Success, who can walk you through the process.
Step 1: Setup a clearing account
In Xero:
Go to your Chart of Accounts and create a current asset account for your August Amazon Fees. Ensure payments to this account are enabled.
In QuickBooks:
From the Lists menu, select Chart of Accounts. Right-click, then select New. Choose the Bank radio button and click Continue.
In the Account Name field, enter “Clearing Account” (do not enter an opening balance), then Save & Close.
Step 2: Find and recode
If you have already posted your August and September entries from A2X to Xero or QuickBooks, use the following steps to reallocate the VAT amounts to your clearing account.
In Xero:
Go to Accounting > Advanced, then click Find and recode.
Add two conditions:
Date: “Is between” 1 August 2024 - 31 August 2024.
Account: Choose the account you typically map Amazon fees to.
Select all applicable transactions and click Recode.
In the Account field, choose the clearing account. In the Tax Rate field, select "No VAT." Click Review, then confirm.
In QuickBooks:
Click the settings icon, then select Tools > Reclassify Tool (accountant admins only).
Select the account where FBA fees, merchant seller fees, and other Amazon fees are posted.
Set the date from 1 August 2024 to 31 August 2024, select applicable transactions, and click Reclassify.
You can read more about reclassifying transactions in QBO here.
Step 3: Enter the bills from your Amazon Tax Document Library
Download your VAT invoices from Amazon Seller Central (Reports > Tax Document Library) for August 2024. Raise each of the invoices for August 2024 as bills in your accounting system, paying careful attention to the tax rate on each one. You can use automated tools like HubDoc or Dext for this.
What about Credit Notes for prior periods?
If you notice credit notes or back-dated invoices in your Amazon Tax Document Library for August 2024, raise these in the accounting system as well. If you follow this process, the transitions in the clearing account should offset them.
Step 4: Mark the bills paid
You should now have all the Amazon invoices sitting as unpaid bills in your accounting system. The next step is to mark these bills as paid to the Clearing Account. In Xero, you will find this option at the bottom of each bill.
In QBO you use the “make payment” option on the bill. In the drop-down, select the clearing account that you just created.
You can read more about that here.
Step 5: Check the clearing account
Check the credits and debits in the clearing account match, with only immaterial differences. If they don’t match, check for any missed bills in the Amazon Tax Document Library.
We’re here to help!
If you have any questions or need further assistance, our support team is here to help. We also offer one-off support calls to review your new VAT mappings. You can book a call here.