Amazon started as online book store and has grown to be the worlds largest online retailer.
FBA Return Reimbursements missing VAT with Amazon VAT Calculation Services
This is quite a specific case, but it would appear that if you sign up to use Amazon VAT Calculation Services, have your products in FBA, get a return request and the item is refunded by Amazon but the return not received, then when Amazon reimburse you the refund will be net of VAT.
What triggers the error?
You may encounter this error if you have signed up to Amazon VAT Calculation Services and go on to sell an FBA product for which a return request is generated and then the product never returned or goes missing in transit. Your Amazon account will appear to balance, but if you did deeper you’ll discover the missing VAT when the refunded amount is reimbursed.
Amazon VAT Calculation Services Missing VAT Example
- You make a £600 sale (£500 plus £100 VAT) and the item is shipped from FBA
- The customer requests a return and immediately the £600 sale price is removed from your Amazon seller account
- For whatever reason, the return is never completed and Amazon issues a reimbursement but only for £500 (ex VAT)
How do you account for the missing VAT?
Put aside the fact that your cash flow is out by the VAT amount until you can correct your accounts, the sellers we’ve spoken to have no idea as to how they should account for the missing VAT on their VAT returns. Having consulted specialist Tax Advisors they have also been unable to suggest an accounting method to handle the missing VAT.
Sellers have raised this situation with Amazon who have stonewalled and (perhaps unsurprisingly as this is a relatively new edge case and quite complicated) been unable to offer a resolution or explain why the VAT discrepancies are occurring.
If you are using Amazon VAT Calculation Services and have had returns which were reimbursed, it may be worth checking your accounts to see if you too have missing VAT on reimbursements.
The only solution currently available would appear to be turning off Amazon VAT Calculation Services and providing your own VAT invoices upon request.
A complicated issue for sure for Amazon to resolve, but as is always the case…Amazon looks after #1 in all that it does.
Work out your Sales VAT independently, or at least through a 3rd party. Keep a close check on the money that Amazon owes you! I am building this report into my software.
Are you saying this actually results in an error in the money transferred to the merchant by Amazon or are they transferring the correct money (inc VAT) but not showing it in the Income and Expenses sections of the monthly summary report?
Sellers are saying Amazon credit the money less the VAT. If the sale was £500 plus £100 VAT then Amazon are only crediting £500 and the £100 VAT goes missing 😮
Actually this could be VERY significant. We are experiencing the same issue. We are trying to get some answers from amazon as £35k of sales in Q4 2017 had return requests which led to return reimbursements rather than actual returns. Thats £8k of VAT which was withheld by amazon which we already paid VAT on as we were not aware.
I would guess that for other sellers like us, around half of return requests are not followed through- so thats about 5-7% of turnover for which amazon is withholding the VAT for them.
Question is what is Amazon’s rationale for this, it’s surely not “an error” but an accounting policy- but one which neither Amazon nor highly paid VAT consultants can explain.
we signed up to the vat calculation service early 2017,
we open a support case each time we received a reimbursement from Amazon.
sometimes they were paid straight away, some took several attempts.
but earlier this year (2018) we were told that the reimbursement payments are supplied nett of vat and amazon will not reimburse the vat element, and we were told previous reimbursements that we had corrected were paid in error.
I did contact HMRC last year for clarification,
they were not able to answer immediately but they placed a call-back with a senior member of staff – who told us as far as HMRC were concerned the remimbursement was a sale – but a sale to amazon and therefore vat was payable to HMRC on this 2nd transaction.
as I understand the reimbursement isn’t sold to us as insurance which could be classed as vat exempt on the claim.
in the event of a an item which is lost (then perhaps found in the future and then resold by amazon) or damaged (but could still be resold by amazon warehouse)
There is NO ERROR in the calculation ( as long as your no are not a VAT fraudster ).
1.) Item is sold at 500 net + 100 VAT and invoice is issued (-> VAT goes to HMRC).
2.) Item is refund for 500 net + 100 VAT + Credit Note is issued by seller ( VAT claimed back from HMRC with your monthly statement)
3) Amazon refunds the missing item at 500 NET . As long as the item is missing – these refunds are always TAX free and NET in the EU.
There is only a smaller cashflow until the next tax report. Time to start bookkeeping if you are a vat fraudster – issue invoices & credit statements to claim back the VAT… hahah
ah, yes agreed but look at this scenario
customer buys fba item – merchant paid – merchant pays vat etc.
customer says to amazon they want to return the item – merchant deducted by amazon at that point (not at point of return) – merchant deducts vat on next return as the vat report from amazon now shows a refund (two parts nett and vat element)
customer does not return the item to amazon as changed their change of mind.
amazon reimburses merchant instead of the item.
vat report now shows a reimbursement a (two parts nett and £0 of vat)
who pays the vat on the reimbursement – customer still has item – a sale has taken place.
but the merchant meanwhile has claimed back the vat on the refund but has now been given the nett value back by amazon as a cancellation of the reverse to the original transaction.
the merchant now needs to account for the amazon reimbursement
which if the item was lost could perhaps be considered an insurance payout. (although HMRC told us it was not an insurance payout as the wording insurance had not been used at any point by amazon)
but if the customer just simply decided not to return after all, it is a sale.
“but if the customer just simply decided not to return after all, it is a sale.”
This is an very old problem, since Amazon does not provide any documentation on reimbursements.
Is it lost in transit ? -> No VAT
Is it lost but later found and sold as “Warehouse Deal” -> VAT !
Is it still at the buyer ? -> VAT
We solve it like this:
We book the reimbursement first with full VAT (19% here in Germany).
This is a small loss (less than 1% returns..) for us.
During the next tax audit, we will try to claim the back the VAT.
Is it is OK for the tax authority we will get the VAT Back – if not everything is fine.
It is the same with promo shipping costs and gift wrap with FBA orders.
You pay 1 EUR NET to Amazon – but have to invoice 1 EUR incl. VAT….
can tamebay get a proper answer from amazon on behalf of us all?
If I could find anyone that could understand the problem that would be a start… getting an answer is even harder 😮
I would be very curious how ANYONE using VAT calc services is doing their returns as everyone has returns and every has return reimbursements with withheld VAT if they are. If the sector is high return rate then this is a very important issue.
Is everyone just overpaying to stay safe (i.e. allowing amazon to keep the VAT but also paying VAT on these same transactions) or are people just making all reimbursements non-vatable? (I have heard of many sellers who apply this 2nd approach)
clear as mud!
I was sent a link by amazon to the reimbursement policy about 4 weeks ago, and of course the page did not work – they said it was in the process of being updated (how can it be applied retrospectively?) – anyway the text is now available and it is below. (but I think amazon might have misunderstood their own policy – it refers to the ptc code which I think is the code set to make books/childrens clothes etc vat exempt – if amazon are not paying any vat on reimbursements the vat status of the item is irrelevant)
We consider several factors when determining the reimbursement amount, including:
Your sales history
The average FBA selling price on Amazon
The sales history of the specific ASIN
The estimated reimbursement amount excludes local standard applicable VAT rate. If you are enrolled on our Amazon VAT Calculation Service, we will take your Product Tax Code (PTC) into considerations when calculating the applicable tax rate.
If we do not have enough information to calculate the reimbursement amount for an item, we will assign a value to your inventory based on similar items.
If you request a re-evaluation of the reimbursement that you receive, we may request additional information from you, such as a receipt or an invoice.
The reimbrsement amount for a single item will not exceed £/€ 2,000. For products valued at more than £/€ 2,000, we recommend that you consider purchasing third-party insurance.
Thanks Nick- I would be curious how other people are processing these reimbursements? Especially those on VAT calculation services who knowingly or otherwise have VAT withheld on these return reimbursements.
This really is a big difference in a high return rate sector, especially with low margins- a missing 20% is massive. Really surprised this is not a major headache for every seller right now…
if the reimbursement is against a lost item – then yes I can see how it can be paid nett.
but when amazon debit the seller as a customer wants to return an item – then the customer doesnt return the item – nett and tax should be reversed back to the original state –
and as amazon charge the seller the fba reprocessing fee for an event that never happened – I suspect we will need to collect all the details together and ask amazon to repay us these non event processing fees as well.
We have enrolled onto the VAT calculation service and the refund option for both MFN and FBA order is a total shambles…just keep it simple!…If a refund of £6 is made, assume £1 of it is the VAT
correct the whole system is a mess –