If your UK business became VAT registered, but there was a delay in providing your VAT number to Amazon Seller Central, you might have been incorrectly charged UK VAT on your Amazon fees during that period. In such cases, you will need to make an adjustment in Xero to reclaim this VAT.
Why this happens: Typically, once Amazon has your UK VAT number on file, they will only charge VAT on specific services like advertising costs for UK sellers. However, if your VAT number is not provided, Amazon may incorrectly charge 20% UK VAT on all fees. Link My Books' default tax rates for UK businesses assume that your VAT number has been provided to Amazon, meaning any incorrect VAT charged during this gap will need a manual adjustment.
⚠️ Important Disclaimer: Consult Your Accountant
The guidance provided below is for informational purposes only. VAT regulations and accounting practices can be complex. You should always seek the advice of your accountant or a qualified tax professional to ensure these adjustments are made correctly and comply with all current tax laws. This article provides basic guidance to work with your accountant.
Step 1: Download Seller Fee Invoices from Amazon
The first step is to identify and total the incorrectly charged VAT from your Amazon Seller Fee Invoices.
Navigate to Tax Document Library: Log in to your Amazon Seller Central account and navigate to Reports > Tax Document Library.
Access Seller Fee Invoices: On the 'Seller Fee Invoices' tab, click 'View' for all invoices that fall within the specific period when your business was VAT registered but your VAT ID was not yet entered on Amazon.
Review Invoices and Sum VAT: For each relevant invoice:
Verify that the Supplier VAT number starts with 'GB'.
Confirm that the VAT% charged is 20.00%.
Note down the VAT amount charged on the invoice.
Sum up all the VAT amounts from these invoices to get your total incorrect VAT charged.
Calculate the Gross Adjustment Amount: Once you have the total VAT amount, you need to 'gross it up' for the journal entry in Xero. To do this, multiply the total VAT amount by 6.
Formula:
Total VAT Amount x 6 = Gross Adjustment AmountExample: If your total incorrect VAT was £20, then
£20 x 6 = £120. This £120 is your 'Gross Adjustment Amount' needed for the next step.
Step 2: Create a Manual Journal Entry in Xero to Adjust for VAT
You will now create a manual journal entry in Xero to make this adjustment. If you are unsure about creating manual journals, please consult your accountant.
Create New Manual Journal: In Xero, go to Accounting > Manual Journals > New Journal.
Enter Journal Details:
Narration: Provide a clear description, such as "VAT Adjustment on Amazon Fees - [Relevant Month/Period]".
Date: It's usually best to make one entry for the total adjustment. Use the date of the last day of the final month for which you are making the adjustment.
Amounts are: Set this to 'Tax Inclusive'.
Add Journal Lines:
Line 1:
Account: Select the account you use for Amazon Seller Fees.
Tax Rate: Set to 'Reverse Charge Expenses 20%'.
Amount: Enter your 'Gross Adjustment Amount' from Step 1 as a Credit.
Line 2:
Account: Select the account you use for Amazon Seller Fees (or a specific VAT control account if advised by your accountant).
Tax Rate: Set to '20% (VAT on Expenses)'.
Amount: Enter your 'Gross Adjustment Amount' from Step 1 as a Debit.
Post the Journal: Post the completed journal entry.
This manual journal entry will correctly adjust your Amazon Seller Fees and ensure you reclaim the incorrectly charged VAT on your next VAT return. Remember, always work closely with your accountant when making these types of adjustments, as they are the experts in tax compliance.
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