Are you factoring in VAT for Amazon Sponsored Products?

I’m going to start this post with some exciting news – our bamboo hooded towels are now in stock in all three colours!  If you’ve been waiting for a particular colour, now is the time to order.

What I want to speak about this week is ensuring you’re factoring in VAT when working out your profit margins – especially in areas you might not be expecting to.  

If you sell on Amazon you should know (I have also mentioned before) that the fees you pay (and you can get an idea of what these will be, if you’re not already selling yet, using Amazon’s calculator) will have VAT added if you are a UK seller and you are not VAT registered.

I spoke to a client this week, who wasn’t aware this meant all fees – including Amazon Sponsored Products.

If you’re not VAT registered in the UK, factor that into your Amazon Sponsored Products budget

This is really important to know as, if you set a daily budget of £10 for your campaigns (as an easy example), you’re in reality committing to spending £12 a day, once you add on the VAT.

If you’re not factoring this in, you’re going to get a shock when your bill comes.

It also means that your ACOS (actual cost of sale) isn’t a ‘true ACOS’, as it won’t include the VAT. Amazon don’t factor this in until they produce your bill.

Amazon’s take on this

My client was adamant that this wasn’t made clear (hence the advertising payments reporting coming as a nasty surprise). When I thought about it, I hadn’t seen this stated anywhere either.  So I asked Amazon for a response.

This is what they said:

“VAT is added to all fees on Amazon.

VAT, in the European Union, is a consumption tax assessed on the value added to goods and services. It applies to goods and services that are bought and sold for use or consumption in the European Union.

This is added as it is the law and therefore will only be removed if you are VAT registered.”

So, they don’t make it clear anywhere that Sponsored Product fees will have VAT added, as all services have VAT added, so we should already know that.

The exception to this is your monthly subscription.

If you didn’t already know this, I hope this has enlightened you!

This applies in every country where you are not registered for VAT

Just to be clear, this is the case in every country where you are not VAT registered – and the VAT rate isn’t the same in all countries.

My advice to my client?  To check with their accountant whether registering for VAT in the UK (despite not yet being at the sales threshold) would actually save money in VAT that can be claimed back…

I’ll be asking my accountant the same thing!