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For U.S. brands already working with Amazon to sell their products in the States, expanding into other markets seems like it should be a simple move. You can just tell Amazon you want to sell in the UK, for example, and they'll take care of the rest, right?
Unfortunately, it's not that easy. Launching your brand in the UK via Amazon has significant implications on your tax situation. Notably, the value-added tax (VAT) that is added to sales made in the UK via Amazon. Dealing with VAT, from registering for your number to understanding the differences between rates for different products, requires a significant time investment to get right, and often involves more legal and logistical resources that most brands have available to them.
That's why we've enlisted Lana Johnson, from Spiria, to walk us through the most important takeaways of expanding to the UK with Amazon.
Breaking down VAT and its requirements
Before you consider whether your brand can sell products in the UK, you need to understand what VAT is, how the Her Majesty's Revenue and Customs (HMRC) tax authority will classify your business, and what your responsibilities are for charging VAT with each transaction.
There are some fundamentals to keep in mind:
VAT is similar to a U.S. sales tax. Just as in the U.S., businesses are responsible for collecting VAT on all of their sales and transferring it to the HMRC. Unlike in the U.S., the tax percentage doesn't vary between regions—there are some exceptions based on types of products, which we'll cover in a moment.
Foreign sellers must register with the HMRC for VAT tax. The HMRC classifies your U.S.-based brand as a non-established taxable persons (NETP), which means there are no situations, such as a threshold, in which you are exempt from collecting and paying VAT. You must register as soon as you make supplies available in the UK.
Amazon is required to ensure you are VAT registered before allowing you to sell in the UK. Because of the increased demand for NETPs selling via online portals like Amazon and eBay, these companies are required to have your VAT registration in hand before they allow you to sell a single product in the UK.
Navigating the VAT registration process
You can apply for VAT registration via an online portal available on the HMRC website. The online forms simplify much of the process, but businesses from the U.S. are often subject to longer wait times and other complications that UK-based companies don't encounter.
Ideally, you'll receive a VAT certificate within 14 working days, although the process can take longer. Once you have the VAT number, you can register on Amazon to become a seller in the UK using a valid credit card, phone number, EIN and VAT numbers, and a bank account compatible with Amazon. If you want to go the Amazon FBA route, there are a few additional steps.
One important consideration is that the HMRC most often communicates with applicants by mail, even if they're overseas. Because the correspondence can take weeks to arrive at one location or another, many businesses find that by the time they've received a letter from the HMRC asking for more information, the deadline has already passed.
Johnson says, "The best way to avoid such problems would be to place your VAT compliance procedures with an experienced professional (tax agent in the UK) who will guide you through all the stages and help avoid all ‘stumbling stones.'"
Standard and non-standard VAT rates
As mentioned earlier, some products are exempt from the full 20% VAT. A reduced rate of 5% VAT applies to certain goods, such as children's car seats, sanitary products, and products that aim to reduce a person's fuel or energy usage.
Even further, a 0% VAT applies to only a select few types of products, including food, books (minus audiobooks), newspapers, safety equipment, children's footwear, and other children's clothes.
It's critical to remember that even if you make a 0% VAT item, such as children's clothes, you are not exempt from registering for a VAT number in the first place. The HMRC still wants to see that you're invoicing for 0% VAT, and you might need to collect VAT on some of your other products.
"Sellers do not have to worry about keeping track of various rates as Amazon UK will automatically apply the relevant rate as applicable," Johnson says. Amazon also makes the information available for you to view later.
Filing your VAT returns
Johnson warns that as soon as you're selling products on Amazon, you need to start paying attention to VAT filing periods, which don't always align with traditional quarters on the calendar. The filing deadline is the 7th of the second month following the end of the filing period.
For example, if the VAT period ends on the 31st of December, payment is due before the 7th of February. Keep in mind that your payment method can alter the deadline, so it's best to check in on the VAT payment deadline calculator to get a better sense as to your exact requirements.
Generally speaking, your output VAT, which is the VAT received through selling products, is weighed against your input VAT. If the input is higher than the output, you must pay the difference. If the output is higher than the input, you'll receive the difference from the HMRC 20 days after you file your return.
Once you're filing VAT returns, you should prepare yourself for a possible inspection, especially if your first filings are for refunds rather than payments, or if your returns change dramatically. "This especially applies to businesses who start filing returns with VAT refunds or whose VAT returns patterns have changed for some reason," Johnson says.
Make sure that you, or your UK tax agent, have all the invoices and other evidence necessary to prove you're paying all the VAT that you owe, or that you indeed are entitled to a refund.
Final thoughts and predictions on the UK VAT
With the right planning and the right counsel from well-versed experts, selling your products through Amazon in the UK is well within reach for many brands. Still, there are some last pointers to keep in mind, particularly for those who might be making the transition in 2018 and beyond.
You should keep an eye on any UK VAT changes due to Brexit. Johnson says, "In reality, no one knows what the true impact Brexit will have on businesses. However, this does not mean one should not start preparing and planning for it now."
This is most relevant to foreign brands that want to sell in both the UK and other EU states. Brexit could mean different standards, such as which products are subject to reduced or zero rates, forcing you to be prepared for two different situations.
Find experts you can trust. Having a few experts in your back pocket is always a good move—whether it’s due to Brexit or something else, you probably have more important things to worry about than the nuances of the UK tax system.
You can learn more on UK VAT via our UK Country Guide. That’s our go-to source for comprehensive details about bringing your brand to the UK.
Prepare for “impact”. Even if you’re just getting started, make sure you know about all the benefits and consequences of selling in the UK with Amazon. Chances are it will be great for your brand—but only if you know what you’re getting into, and are ready to prepare.
I hope you enjoyed these insightful takeaways from Lana. If you need help with your brand tax and compliance matters to launch into the UK market, you can contact Lana at Spiria Group directly.
e-mail: lana.johnson@spiriagroup.com
phone: 00 44 207 206 2646
