If there was a gap between the date you became VAT registered and the date you entered your VAT number on Amazon Seller Central then you may need to make an adjustment to your VAT on Amazon fees.

The reason for this is that if you have not entered your VAT number on Amazon they will be charging you 20% VAT on all fees.

As a UK company, once you give them your VAT number they will typically only charge you VAT on your Amazon advertising costs in the UK.

The default tax rates in Link My books (for UK businesses) are set up to assume the second option, that you have provided your VAT number to Amazon. So if you have not then you will need to make an adjustment to the VAT on Amazon fees.

You should seek the advice of your accountant to help you with this. Below is some basic guidance you can work with your accountant to do to make these adjustments.

Step 1: Download your Seller Fee Invoices from Amazon

Navigate to Reports > Tax Document Library in Amazon Seller Central:

On the Seller Fee Invoices tab click view on all the invoices dated between when you became VAT registered and when you entered your VAT ID on Amazon:

The invoices will look something like this:

  1. Check that the Supplier VAT number starts with GB.

  2. Check that the VAT% is 20.00%.

  3. Grab the VAT amount.

Do this for all the invoices and add up all of the VAT.

Once you have the total VAT you need to gross it up.

To do this take the VAT amount and multiply it by 6.

So if your VAT total was 20, then it would be 20 x 6 = 120.

You'll need your grossed-up amount in the next step.

Step 2: Create a manual journal to adjust for the VAT

Create a manual journal entry in Xero (ask your accountant to do this if you're unsure).

The journal should look something like this:

  1. Give the journal a Narration, something like VAT Adjustment on Amazon Fees.

  2. Enter the Date, usually, it's best to do one entry for all the VAT so use the date of the last day of the last month you're making the adjustment for.

  3. Set the Amounts are box to Tax Inclusive.

  4. Set the Account field to the account you use for Amazon Seller Fees.

  5. Set the Tax Rate fields to Reverse Charge Expenses 20% for the first line and 20% (VAT on Expenses) for the second line.

  6. Take your grossed-up amount from Step 1 and enter it as a Debit amount for the second row and a Credit amount for the first row.

  7. Post the journal entry.

This journal entry will ensure that you reclaim the VAT paid on your Amazon fees as part of your next VAT return.

Make sure you work with your accountant when doing all of this as they are the experts.

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