How VAT Works

One of the most popular posts I’ve ever written on this blog is about selling on Amazon.co.uk. Since that post I’ve had many emails asking me for details about how VAT works, so I thought it would be useful to post the major points you need to know about VAT. Before I go any further I should probably mention that I’m not a lawyer nor am I an accountant, nor for that matter British! So make sure to consult a professional before doing anything too crazy. Ok with that said, here are the most common questions answered.

1. Do I have to apply for VAT? Yes. there was a a threshold 2 years ago but now you must register regardless of the volume of sales. Amazon.co.uk will not even let you open an account without the registration.

2. What is the VAT rate? The standard rate you can expect to pay is 20% of the value of the items. There are some exceptions but this almost completely covers anything that you would sell on Amazon.

3. How long does this take? It’s actually pretty quick. They will get you the number within 15 business days of applying.

4. Do I need to keep any special records? You just need to have sales records, plus records of what VAT you have already paid.

5. Do I need to incorporate in the UK? No. You can use your US legal entity.

6. How frequently do I have to file? Every 3 months.

7. How do I apply? This link will take you to the online application.

8. How do I pay? Once you have an account you pay online. Here is a link to the payment area.

9. This sucks! Can’t I just pay someone to take care of this for me? Yes! Amazon referred me to regionalexpress.co.uk. Particular they said ask for Eric who is the managing director. I didn’t personally use them, but they are the go to guys according to Amazon.

I think that covers most of the questions I’ve gotten, but if you have more add them to the comments. I doubt I can answer them but I could ask see if we could get someone from Regional Express to.

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  • Warren Johnson

    Some freight companies in the UK will pay the duty tax for you (and only release your goods when that duty is reimbursed plus a fee for their service of course) which means you don’t have to have a VAT account to get your items into the country. To file your quarterly VAT you’ll need an account though. As said in the blog, that’s not that difficult.

  • Warren Johnson

    Americans are not typically familiar with why you pay VAT upon entering the items into the country and then collect VAT during the sales process. VAT is a consumption tax on most tangible items. When you import items into the UK you pay a 20% VAT on the price of the items plus the freight. The reason you do this is because the UK assumes you’re going to consume those items yourself. When you sell the item online, you then collect the VAT on the item’s sale price. However, since you’ve sold the item you’ve proven you won’t be consuming it yourself and you’re given a refund on the VAT you paid on the item when you originally imported it. So, let’s say you pay $5 VAT to get the item in the country and then collect $15 VAT when you sell it. You’ll get that $5 back and then you’ll remit the $15 collected on the sale to the treasury. Please correct me if I’m wrong.