VAT Explained Amazon FBA - How to Calculate VAT - Amazon FBA UK 2019

In this video I show how VAT applies to all Amazon FBA fees including FBA Fulfilment/Referral Fees and your Pay Per Click (PPC) Sponsored Ads. I also show how to calculate VAT.

The easiest way to understand VAT is that there are two types - Input VAT (Purchases) and Output VAT (Sales).

Input Vat - This is paid on all purchase product and services to VAT registered businesses. It is also paid and on imports from outside of the EU (i.e. China). Input VAT is reclaimable if you are VAT registered, otherwise it is not reclaimable.

Output Vat - This is charged on all of your Amazon product sales once you become VAT registered, it does not apply if you are not registered for VAT.

How to Calculate VAT:
• Calculate 20% VAT by multiplying by 0.2 (or multiply by 1.2 for VAT inc. Total):
£10 x 0.2 = £2.00 VAT£10 x 1.2 = £12.00 inc. VAT
• Reverse calculate 20% VAT by dividing by 6 (minus from total for VAT exc. Total):
£12 / 6 = £2.00 VAT£12.00 - £2.00 = £10.00 exc. VAT

General Vat Notes:
• Reclaiming VAT - You don't really claim VAT back (unless you have previously overpaid VAT to the HMRC), instead your Input VAT is deducted from your Ouput VAT and you pay the difference to HMRC.
• The standard UK VAT rate is 20%, these are certain products that carry a lower rate e.g. Baby Clothes are 5% and Cycle Helmets 0%.
• If your supplier is offering DDP (Delivery Duty Paid) shipping method you will need to ask them to provide an invoice in order to reclaim VAT.
• If you use a freight forwarder they be able to supply the relevant VAT invoice.

Non-VAT Registered vs VAT Registered Profit Margin Comparison
• Non-VAT Registered Profit (Your Price £20.00 - Total Unit Cost £14.04) = £5.96 Per Unit
• VAT Registered Profit (Your Price £16.67 - Total Unit Cost £14.04 + Total Input VAT £2.34) = £4.97 Per Unit
• So despite charging £3.33 less for the product when VAT registered, in this example you only lose £0.99 of profit as you are able to reclaim £2.34 for Input VAT.

When to become VAT registered
• If you are a UK resident when turnover reachers £85,000 per annum
• If you non UK resident as soon as you start selling in the UK
• If you are using PAN-European you must become VAT registered in every country your stock is held
• You do not need to be VAT registered if using EFN and under the respective countries VAT threshold

If you have any questions about Amazon VAT or FBA Fees drop it in the comments below or email me (my email address is at the end of the video)! !

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