Amazon / eBay & VAT Reverse Charge on Services

[spamalot]

I have a quick question regarding VAT, specifically the reverse charge on services.

I've just been reading in to Amazon and eBay fees and the treatment of VAT on these fees. Both companies are based in Luxembourg.

Here's an example that I think should best demonstrate my question-

I start a new company that VAT registered.

We buy £100 (inc VAT) worth of stock

We sell it for £100 (inc VAT) on Amazon

Amazon change us £10 (no VAT as outside the EU) in fees

Amazon pay the company £90

There are not other trades or costs to the business​

At the end of this example how much VAT is owed by the company?

Initially I thought it would £2 as the VATable sales minus the VATable inputs would cancel each-other out buy you would still effectively have to pay the UK VAT on the Amazon fees (as in practice you've spent £10 on goods that are not VAT deductible). Now I've started to to read in to the reverse charge on services I'm questioning if zero would be owed?

My head hurts... please help.

 

[faradaykeynes]

What sort of vat scheme are you on?

 

[spamalot]

I'm not sure, what are the options?

We file a quarterly UK VAT return if that helps.

 

[faradaykeynes]

Are you on standard or flat rate vat scheme etc?

 

[spamalot]

We're on the standard scheme.

 

[GraemeL]

Your VAT obligation is on the price the customer buys the goods for:-

Sell at £83.33 plus £16.67 VAT (£100)
Give Amazon £10 from the net price as sales commission
You get £73.33 plus £16.67 VAT (£90)
You pay HMRC £16.67 less your usual offsets

If you bought the goods for £83.33 plus £16.67 VAT then you might have a zero VAT return, but you would obviously lose £10 every sale.


And on your VAT return you record the £10 that you gave to Amazon under the Reverse Charge VAT scheme, which makes no difference to what you pay HMRC but causes more work.

Amazon make a lot of money!

 

[spamalot]

Ok,

So in another example just so I have it 100% clear.

If you we're to buy an item for £90 inc vat and sell it for £100 inc vat and and you had Amazon free of £10 what would you vat bill be?

Thank you

 

[faradaykeynes]

Have a look at vat treatment of goods & Services quick summary

In your above example input vat is £15 and output vat 16.60, net payable 1.60

 

[Marie Stein]

If I can make a suggestion, it's best to think of the sale of the goods and Amazon's service of selling them as 2 separate transactions as follows:

Purchase and sale of goods:

• Sale of goods for £100 incl VAT, your output tax is £16.67. £16.67 goes in box 1 of your VAT return as output tax and £83 in box 6 (sales).
• Purchase of goods for £90 VAT incl, your input tax would be £15. £15 goes in box 4 of your VAT return (input tax)and £75 goes in box 7 (value of purchases)

VAT accounting for Amazon's fee of £10 is as follows:

• Reverse charge output VAT of £2 is added to your output tax in box 1 of your return. You DO NOT include £10 in box 6 because it's not a sale.
• Reverse charge input VAT of £2 is added to your input tax in box 4 and the value of £10 is added to the value of purchases in box 7, because it's a purchase of Amazon's services.

So your net VAT due to HMRC is £1.67.

Reverse charge VAT accounting often causes confusion, but its the way that HMRC collect VAT on imported services. If Amazon were based in the UK, they'd charge UK VAT on their sales fee, but because they aren't registered in the UK, the customer (i.e.you) have to pay the VAT by including it as output tax on your VAT return. In your case, it doesn't cost anything because you can claim it back as input tax in box 4 of your return.

If we were talking about goods, VAT on imported goods is either charged at import for goods from non-EC countries, while VAT on goods from EC countries is included as acquisition VAT on the VAT return, which works in a similar way to reverse charge VAT.

Hope that helps a bit!

 

[GraemeL]

If you we're to buy an item for £90 inc vat and sell it for £100 inc vat and and you had Amazon free of £10 what would you vat bill be?

Sell at £83.33 plus £16.67 VAT (£100)
Give Amazon £10 from the net price as sales commission
You get £73.33 plus £16.67 VAT (£90)
You pay HMRC £16.67

Buy at £75 plus £15 VAT (£90)
You offset £15 VAT to HMRC

Net Vat payment £16.67 - £15 = £1.67

And of course you still make a loss.

Its best to forget the VAT element for the purposes of pricing and profitability when selling through Amazon.

Eg
Sell at £83.33
Give Amazon £10
Income £73.33

Need to buy at less than £73.33

 

[spamalot]

That's all really helpful.

Strangely that's how I'd always worked it out in the past. The main reason that I questioned it is because of the huge numbers of sellers on Amazon selling items at a loss (even those VAT registered). I know some of the guys and they're far from stupid so I guess they must have another agenda.

 

[TheCyclingProgrammer]

• Reverse charge output VAT of £2 is added to your output tax in box 1 of your return. You DO NOT include £10 in box 6 because it's not a sale.

Isn't the whole point of the reverse charge that the service *is* treated as a sale to yourself? The net does go in box 6. Reverse charge on services:

* Calculated VAT goes in box 1 and 4
* Net cost goes in Box 6 and 7

This is outlined on the HMRC website (I'd post a link but new users can't).

How do you deal with the reverse charge on services?
You calculate the amount of VAT - Output Tax - on the full value of the services supplied to you, and then fill in the relevant boxes on your VAT Return as follows:

• put the amount of VAT you calculated in Box 1, and if you're entitled to reclaim the VAT on your purchase of these supplies, also put the same figure in Box 4 (this in effect cancels out the figure in Box 1)
• put the full value of the supply in both Box 6 and Box 7

The process is the same if you're on the flat-rate scheme (the reverse charge is dealt without outside the FRS) (although if you're acquiring goods then the VAT goes in Box 2, not Box 1 and FRS users cannot reclaim this VAT).

 

[Michele Hawdon]

I am really confused by this now.

When filling in BOX 9 it says that you should not include SERVICES so does that mean I will pay VAT on the eBay and Amazon fees?

 

[Marie Stein]

Re the post from the Cycling Programmer above about the inclusion of the value in box 6 of the return - yes I agree, my error, you are correct. See VAT Notice 700/12, para 4.6 http://tinyurl.com/ou4yymk which shows what must be included in each box of the return. I apologize for any confusion my earlier post may have caused to anybody.

Michele Hawdon - boxes 8 and 9 of the return are to report exports and imports of GOODS to other EU countries, so you don't include reverse charges services in those boxes (just double checked notice 700/12 para 3.10 to be sure!!).

But to answer your other question, if you're importing services from Google and/or Amazon, yes, you do have to pay reverse charge VAT on the value of the sales by including it as output tax in box 1 of the return. BUT if you only use the services to make taxable supplies, you can also include the VAT as input tax in box 4 of the return, so the output tax and input tax cancel each other out.

I hope this all make sense. It's a really complicated subject but if you follow the guidance given in HMRC's Notice 700/12, you should arrive at teh correct VAT position.

 

[furman]

I am a little muddled with this. I am now VAT registered and using quickbooks online.
I pay standard VAT on the sale price but for the fees I don't know what I should do exactly. If I charge the VAT at 20% ECG I get entries in box 2, 4 and 9. If I class it as 20% ECS I get entry into box 2.

 

[TheCyclingProgrammer]

According to this you want ESS:
https://community.intuit.com/questi...es-the-rc-code-does-not-seem-to-fit-vat-rules

 

[profz]

Your VAT obligation is on the price the customer buys the goods for:-

Sell at £83.33 plus £16.67 VAT (£100)
Give Amazon £10 from the net price as sales commission
You get £73.33 plus £16.67 VAT (£90)
You pay HMRC £16.67 less your usual offsets

If you bought the goods for £83.33 plus £16.67 VAT then you might have a zero VAT return, but you would obviously lose £10 every sale.


And on your VAT return you record the £10 that you gave to Amazon under the Reverse Charge VAT scheme, which makes no difference to what you pay HMRC but causes more work.

Amazon make a lot of money!

"Give Amazon £10 from the net price as sales commission"

I felt I needed to clarify this very important point as it is incorrect.

One of the reasons it is very hard to make money on Amazon in the UK or EU is because they are very sneaky in that they charge you sales commission on the GROSS amount, not the net amount.

On the US marketplace, if the price you are selling for is $25, then you get charged 15.2% as Amazon's sales commission on that $25.

However if that same item is for sale in UK, you have to charge £30, because £5 of that is being collected for the tax man and never yours to begin with.

The key difference is that Amazon is charging you 15.2% on that gross amount of £30, NOT the net amount of £25 (I am surprised if this is even legal). So what this boils down to is that if you're a seller in UK or EU, you're really paying 18.4% commission to Amazon (as only the net amount is really yours), which gives US sellers a massive advantage.

The smaller sales tax in US is hidden. Amazon pays it of course, but it doesn't enter the equation anywhere. In other words, Amazon is not charging commission on the sales tax for US sellers, but they are for UK sellers.

Hope that makes sense and clarifies things as this is not well known or documented.

 

[japancool]

That particular post is 9 years old.

 

[GraemeL]

"Give Amazon £10 from the net price as sales commission"

I felt I needed to clarify this very important point as it is incorrect.

It is not incorrect, even though I posted that a long time ago!

In my example, you pay Amazon £10 commission from the net price of £83.33 leaving £73.33. The VAT amount of £16.67 that you pay to HMRC in unchanged.

Your overall point is correct though.

 

[profz]

That particular post is 9 years old.

It is, but still searchable on Google and was partially incorrect and needed correcting. The information is also still relevant today as it was 9 years ago.