Demystifying UK VAT for Amazon Sellers: 2025 Compliance Explained

TL;DR

• VAT is a mandatory part of selling on Amazon UK and directly impacts pricing, profit, and compliance.
• Sellers must register for VAT once turnover exceeds £90,000 in 12 months; non-UK sellers using FBA in the UK must register from day one.
• VAT now applies to Amazon FBA and selling fees, reducing payouts and affecting cash flow.
• Filing is required quarterly using Making Tax Digital (MTD) software, with strict deadlines to avoid penalties.
• Common VAT challenges include late registration, pricing errors, multi-country complexity, and poor recordkeeping.
• Using tools or hiring an Amazon consultant can simplify compliance and prevent costly mistakes.
  

You’re growing your Amazon UK sales then VAT shows up like an unexpected fee you didn’t sign up for. Suddenly, your payouts drop, tax terms get thrown around, and you’re stuck wondering what went wrong.

If VAT feels like a confusing mess of thresholds, returns, and rules you didn’t ask for you’re not alone. Thousands of Amazon sellers face the same frustration, especially with new changes rolling out in 2025.

This blog is here to cut through the noise. We’ll explain exactly what Amazon UK VAT is, when you really need to register, how it affects your Amazon sales, and what the current thresholds mean for your business.  You’ll also learn how to register, file returns, and avoid the common traps that cost your time and money. 

What is UK VAT?

VAT (Value Added Tax) is a tax added to most goods and services sold in the UK. For Amazon sellers, it’s not just another business formality it directly affects your pricing, profits, and compliance. In simple terms, VAT is a consumption tax collected at each stage of the supply chain. 

As a seller, you either add VAT to your product price or include it in your listed price. You then report and pay that VAT to HMRC (the UK tax authority). If you’re based in the UK or selling to UK customers, you may be required to register for VAT, especially if your sales go over a certain threshold. 

Thus, understanding how VAT works is key to avoiding penalties and staying in control of your earnings. Don’t treat it as an afterthought, it’s part of doing business right on Amazon UK.

Why does it matter for UK Amazon sellers?

Ignoring VAT obligations does not eliminate them, and the consequences can extend far beyond financial losses. UK VAT registration for  Amazon sellers is not just a compliance requirement, it’s a critical step to avoid penalties, maintain account health, and ensure long-term business stability.

Here’s why UK VAT deserves every Amazon seller’s attention:

• Legal requirement: If you cross the VAT threshold or sell from overseas into the UK, registration isn’t optional, it’s mandatory. Non-compliance can lead to fines or account issues.
• Affects your profit margins: VAT is usually 20% that’s a big chunk if not accounted for in your pricing strategy. So, understanding VAT helps protect your profit.
• Impacts your pricing and competitiveness: If you’re not charging VAT correctly, your prices could either be too low (hurting profit) or too high (losing the Buy Box).
• Amazon compliance: Amazon often requires sellers to provide a valid VAT number, especially if you store goods in UK fulfillment centers. Lack of one can restrict your selling privileges.
• Claim back VAT on business expenses: If you’re VAT registered, you can reclaim VAT on eligible costs saving money and boosting cash flow.
• Essential for long-term growth: Navigating VAT smoothly builds trust, ensures compliance, and sets you up for scalable, stress-free selling in the UK.

Who needs to register for UK VAT?

Not all Amazon sellers need to register for VAT immediately, but once you meet specific criteria, it becomes mandatory.

Here’s when you need to register:

• UK-based sellers: If your total taxable turnover goes over £90,000 in 12 months (as of 2025), you must complete your HMRC VAT registration to stay compliant and avoid penalties. This includes all your online and offline sales not just what you sell on Amazon.
• Overseas sellers: If you’re based outside the UK but sell to UK customers and store goods in the UK (for example, through Amazon FBA), you must register for VAT from day one there’s no threshold.
• Voluntary registration: Even if you haven’t hit the threshold, you can choose to register. This can help you reclaim VAT on business expenses and appear more credible to customers and partners.

Failing to register when required can lead to penalties, delayed payouts, and even account suspension. It’s better to stay ahead and register early if you’re close to the threshold or planning to scale your Amazon UK business.

Understanding the VAT thresholds and rates

If you’re selling on Amazon UK, understanding VAT thresholds and rates is essential for compliance and pricing. Here’s a simple breakdown:

As a seller, knowing which rate applies to your product and when you must register helps avoid compliance issues and price your listings correctly.

How does VAT work on Amazon sales?

When you sell on Amazon UK, VAT isn’t just a tax, it’s something that affects how you price, get paid, and report your income. Here’s how it works simply:

If you’re VAT registered, you need to charge VAT on every sale of taxable goods to UK customers. That means if your product sells for £100 and the standard VAT rate is 20%, your listing price includes £16.67 VAT (because £100 is the gross price, not the net). You then owe that VAT amount to HMRC, usually through quarterly VAT returns.

Amazon collects the full selling price from the customer, including VAT, and sends it to you. But it’s your responsibility to set aside and pay the VAT portion. Amazon doesn’t do that for you unless it’s a marketplace tax collection case (mainly for overseas sellers).

If you’re not VAT registered, you can’t charge VAT, but once you hit the threshold or are required to register, this changes. Also, if you’re VAT registered, you can usually reclaim VAT on eligible business expenses (like FBA fees, product sourcing, or shipping).

Ultimately, VAT flows through every part of the transaction. Knowing how to manage it ensures you stay compliant and protect your profits.

How to register for VAT?

Registering for VAT in the UK is a must once you hit the threshold or if you’re a non-UK seller using Amazon FBA in the UK. In 2025, the VAT registration threshold is £90,000 in rolling 12-month turnover, but if you’re storing goods in the UK, you must register even if you haven’t reached that amount.

Here’s how to register:

• Go to the HMRC website and create a Government Gateway account if you don’t already have one.
• Apply for VAT registration online using your business details, bank info, and estimated turnover.
• Get your VAT number. This typically takes 2 to 10 working days, though delays are common if documents are incomplete.
• Update your Amazon seller account with your VAT number to remain compliant and avoid account restrictions.
  

After registration, you’ll receive a VAT certificate and filing deadlines. From there, you’ll need to start charging VAT on sales, issuing VAT invoices, and filing regular returns.

Tip: Many sellers choose an Amazon VAT compliance service or work with an accountant to manage setup and ongoing compliance, especially when selling cross-border. This approach saves time and helps prevent costly mistakes.

How to file for VAT returns and payments?

Filing VAT returns as a UK Amazon seller doesn’t have to be stressful especially if you know what to expect. In 2025, most sellers are required to submit VAT returns every quarter using Making Tax Digital (MTD) compatible software. 

This means you’ll need to keep digital records of your sales, VAT collected, and business expenses with VAT paid. When it’s time to file, your return should include total sales, the VAT you’ve charged customers (output VAT), and the VAT you’ve paid on business purchases (input VAT). 

You’ll then either pay the difference to HMRC or claim a refund if you’ve paid more VAT than you collected. Returns are usually due one month and seven days after the end of each VAT period. Payments can be made via direct debit, bank transfer, or debit/credit card.  To avoid penalties, always file and pay on time. 

VAT challenges Amazon sellers commonly face

Here are some of the most common VAT-related challenges Amazon sellers run into:

• Missing the registration point: Many sellers don’t realize they need to register once they cross the £90,000 threshold or immediately if storing goods in the UK through FBA.
• Incorrect pricing: Forgetting to include VAT in product pricing can reduce profit margins or make listings less competitive.
• Filing errors: VAT returns can be confusing. Mistakes in calculations or missing deadlines can lead to penalties and interest charges.
• Multi-country complexity: Selling across multiple countries means dealing with different VAT rules, rates, and registration requirements.
• Poor recordkeeping: Incomplete or inaccurate records make it difficult to file correct returns and comply with Making Tax Digital (MTD) rules.
• Claiming input VAT: Tracking eligible business expenses and reclaiming VAT correctly can be a challenge without proper systems in place.
• Keeping up with rule changes: VAT regulations can change frequently like the updated threshold in 2025 so staying informed is essential.
• Brexit VAT rules for UK: Since Brexit, Amazon sellers face new VAT challenges when trading between the UK and the EU. They must now register separately for UK VAT, handle import VAT, and comply with country-specific rules adding complexity to cross-border selling and tax compliance.

Tools and services to help manage VAT

Managing VAT can get overwhelming, especially as your Amazon business grows. Thankfully, there are tools and services designed to make things easier:

• Xero – A user-friendly accounting software that tracks sales, expenses, and VAT. MTD-compliant and ideal for small to mid-sized sellers.
• QuickBooks – Another popular option that handles VAT calculations, generates reports, and helps file returns on time.
• Taxually – A VAT compliance platform made specifically for eCommerce sellers, with multi-country support and automated filing.
• Avalara – Offers end-to-end VAT solutions, including registration, filing, and ongoing compliance across various marketplaces.
• Hellotax – Tailored for Amazon and other online sellers in Europe. Automates VAT filings, registrations, and invoice generation.
• Amazon VAT Services – For sellers wanting a built-in option, Amazon offers VAT registration, filing, and invoice generation for select countries.
  

Many of these tools integrate directly with Amazon, saving time and reducing manual errors. Choosing the right one depends on your business size, sales channels, and whether you’re selling in one or multiple countries.

2025 updates: What’s new or changing?

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Starting in 2025, there are some important VAT changes every Amazon UK seller needs to know. These updates can directly impact your profit margins, cash flow, and how you manage your account.

#1 VAT now charged on Amazon fees

As of late 2024, Amazon’s FBA and selling fees are now billed by Amazon EU S.à r.l. instead of Amazon Services Europe. What does this mean?

A 20% UK VAT is now added to your Amazon fees, and this amount is deducted from your payouts. Previously, many of these charges were reverse-charged, so there was no immediate cash impact. Now, you’ll feel the effect right away.

2. New VAT registration threshold

From April 2024, the VAT registration threshold increased to £90,000 in rolling 12-month turnover. UK sellers must register once they cross this limit. However, non-UK sellers using Amazon FBA in the UK must register from day one, even if they haven’t hit the threshold.

3. What sellers should do

Plan for tighter cash flow, update your accounting tools, and ensure your VAT returns are filed correctly and on time. Staying on top of these changes will help you avoid penalties and keep your business running smoothly.

Avoid VAT pitfalls, are you ready to comply?

Understanding and managing UK VAT is no longer optional it’s a must for Amazon sellers who want to stay compliant and profitable in 2025. From knowing when to register and how VAT works on your sales to staying ahead of new updates like the £90,000 threshold and VAT on Amazon fees, it’s critical to keep your business in sync with HMRC rules.

With the right tools, services, and knowledge, VAT doesn’t have to be a barrier to growth. Further, working with an experienced Amazon consultant can save you time, avoid costly mistakes, and ensure your VAT setup is done right from day one.

Let the experts handle the complex stuff so you can focus on scaling your business with confidence.