You list a product on Amazon at £29.99. A customer buys it. How much of that £29.99 is VAT you owe to HMRC, and how much is yours to keep?
This catches out a lot of newly VAT-registered sellers. The price your customer pays already includes VAT. You don't add 20% on top, you work backwards to pull the VAT out of the price you've already set. Get the maths wrong and you either underpay HMRC or quietly shrink your own margin.
Here is exactly how to calculate the VAT on an Amazon sale, the simple fraction HMRC uses, and the one situation where Amazon owes the VAT instead of you. Every rule and figure here is grounded in HMRC guidance, with sources at the end.
Do I owe VAT on my Amazon sales at all? {#do-i-owe-vat}
You only charge and owe VAT on your sales if you are VAT registered. If you are not registered, there is no VAT to work out, your selling price is simply your price.
You must register for VAT once your VAT taxable turnover goes over £90,000 in any rolling 12-month period, or if you expect to cross it in the next 30 days (gov.uk VAT registration thresholds). Some sellers also register voluntarily below that level to reclaim VAT on their costs.
Once you are registered and selling standard-rated goods to UK customers, 20% VAT is baked into every sale (gov.uk VAT rates). The job is then to separate the VAT from your own income on each sale, so you declare the right amount on your VAT return.
One thing to clear up early: the VAT on your sales (output tax) is completely separate from the VAT Amazon charges you on its seller fees (input tax). Those fees are a cost to you, and if you are registered on standard accounting you reclaim that fee VAT separately. This article is about the VAT on the price your customer pays.
How do I work VAT out from my Amazon selling price? {#work-vat-out}
Your Amazon price is VAT-inclusive. The customer pays one figure, and the VAT is already inside it. So you don't multiply by 20%, you divide it back out.
There are two equivalent ways to do it for a standard-rated product at 20%:
- Divide the gross price by 6 to get the VAT. £29.99 ÷ 6 = £5.00 VAT.
- Divide the gross price by 1.2 to get the net (your income), then the rest is VAT. £29.99 ÷ 1.2 = £24.99 net, leaving £5.00 VAT.
Both give the same answer. HMRC's own VAT guide uses the divide-by-1.2 method to strip VAT out of a tax-inclusive price (VAT guide, Notice 700, section 7.3).
The common mistake is to take 20% of the gross price. That overstates the VAT. 20% of £29.99 is £6.00, but the true VAT inside that price is £5.00. The difference is small per item and painful across thousands of orders.
What is the VAT fraction, and why 1/6? {#vat-fraction}
Talk to an e-commerce accountant →
The "divide by 6" shortcut has a name. HMRC calls it the VAT fraction, and for the 20% standard rate the VAT fraction is 1/6 (VAT guide, Notice 700, section 7.3).
The fraction is the rate of tax divided by (100 plus the rate of tax). For 20%, that is 20 ÷ 120, which simplifies to 1/6. To find the VAT in any VAT-inclusive total, you multiply the total by the VAT fraction.
So for a £2.40 standard-rated item, the VAT is £2.40 x 1/6 = £0.40. The remaining £2.00 is the net value. This is exactly the worked example HMRC gives in the VAT guide.
| Sale element | How to find it | On a £29.99 sale |
|---|---|---|
| Gross (price the customer pays) | Your Amazon listing price | £29.99 |
| VAT owed to HMRC | Gross x 1/6 (or gross ÷ 6) | £5.00 |
| Net (your income) | Gross ÷ 1.2 | £24.99 |
Keep the gross, net and VAT figures consistent and you will report the right output tax in Box 1 of your VAT return, with the net sales value in Box 6.
Illustrative example: VAT on a month of Amazon sales {#worked-example}
Illustrative example. Tom sells standard-rated phone accessories through Amazon FBA. He is VAT registered in the UK on standard accounting, and all his stock is in the UK and sold to UK consumers. In one month his Amazon sales (the gross amount customers paid) total £18,000.
He works out the VAT owed on those sales using the VAT fraction:
| Figure | Calculation | Amount |
|---|---|---|
| Gross Amazon sales | (customer payments) | £18,000.00 |
| VAT owed to HMRC | £18,000 ÷ 6 | £3,000.00 |
| Net sales (Tom's income) | £18,000 ÷ 1.2 | £15,000.00 |
So of the £18,000 his customers paid, £3,000 is output VAT he owes HMRC and £15,000 is his net sales income. The £3,000 goes in Box 1 of his VAT return, and the £15,000 goes in Box 6.
That is only one side of the return. Tom will also reclaim the VAT on his Amazon fees, his stock bought from UK VAT-registered suppliers and his other costs as input tax in Box 4, which reduces what he actually pays over to HMRC. The point of this calculation is to nail down the output VAT correctly first.
Does Amazon ever pay the VAT instead of me? {#amazon-collects}
Sometimes, yes. In specific situations Amazon is treated as the "deemed supplier" and collects the VAT on the sale for HMRC, so you do not account for it yourself. This is easy to confuse with the normal case, so it is worth being precise.
Amazon is liable to account for the VAT, rather than you, mainly in two cases (gov.uk: VAT and overseas goods sold to customers in the UK using online marketplaces):
- Low-value imports. Goods located outside the UK at the point of sale, in a consignment with an intrinsic value of £135 or less, sold to UK customers through the marketplace.
- Overseas sellers with UK stock. Goods already in the UK that are sold by a seller who is not established in the UK.
If you are a UK-established seller selling your own UK-held stock to UK customers, neither of these applies to you. You are responsible for the VAT on your sales, and you work it out from your selling price exactly as above. The deemed-supplier rules are there to capture overseas sellers, not domestic ones.
If you import stock or your business is established outside the UK, the picture is more involved and worth checking case by case, because where your stock sits and where your business "belongs" both affect who owes the VAT. This is one area we map out carefully with sellers through our accounting service for Amazon FBA sellers.
What about zero-rated and reduced-rate products? {#zero-reduced}
Not everything is 20%. The VAT you owe depends on the rate that applies to what you actually sell.
The UK has three VAT rates: the 20% standard rate, a 5% reduced rate, and a 0% zero rate (gov.uk VAT rates). Most Amazon physical products are standard-rated, but some genuinely are not. Children's clothing and most books, for example, are zero-rated, so the VAT in the price is nil even though you still report the sale.
The VAT fraction changes with the rate:
| VAT rate | VAT fraction | To find VAT, multiply gross by | To find net, divide gross by |
|---|---|---|---|
| Standard 20% | 1/6 | 1/6 | 1.2 |
| Reduced 5% | 1/21 | 1/21 | 1.05 |
| Zero 0% | none | 0 | 1.0 |
Getting the rate right matters as much as the maths. Charging 20% on a zero-rated product hands HMRC money you never needed to collect, and treating a standard-rated product as zero-rated leaves you owing VAT you didn't set aside. If you are unsure which rate your range falls under, our UK VAT services team checks product liabilities so your returns are right first time.
Should I price VAT-inclusive or add it on top? {#pricing}
On Amazon, the price the customer sees is the price they pay, so your listing price is always VAT-inclusive. You cannot show a net price and add VAT at checkout the way a B2B supplier might on an invoice. That is simply how marketplace pricing to consumers works.
This has a real commercial consequence when you first register for VAT. If you keep your £29.99 price the same, your net income drops from £29.99 to £24.99, because £5.00 now belongs to HMRC. To protect your margin you would need to raise the price, but that can dent competitiveness against unregistered rivals on the same listing.
There is no universally right answer. It depends on your margins, your competitors and how price-sensitive your buyers are. If you are approaching the £90,000 threshold, model the impact before you cross it, not after. We help Amazon sellers run exactly this numbers exercise so registration doesn't quietly eat the margin you worked hard to build.
Frequently asked questions {#faqs}
How do I calculate the VAT on an Amazon sale?
For a standard-rated product, divide the gross selling price (what the customer pays) by 6 to get the VAT, or divide by 1.2 to get your net income. On a £29.99 sale that is £5.00 VAT and £24.99 net. You only do this if you are VAT registered.
Why can't I just take 20% of my selling price?
Because your Amazon price already includes VAT. Taking 20% of the gross overstates the VAT. The VAT is one-sixth of a VAT-inclusive price, not one-fifth. For £29.99, the correct VAT is £5.00, not £6.00.
What is the VAT fraction for 20% VAT?
It is 1/6. HMRC defines the VAT fraction as the rate divided by (100 plus the rate), so 20 ÷ 120 = 1/6. Multiply any VAT-inclusive total by 1/6 to find the VAT inside it.
Does Amazon collect the VAT on my sales for me?
Only in specific cases, such as low-value imported goods of £135 or less, or UK-held stock sold by a seller not established in the UK. If you are a UK-established seller selling your own UK stock to UK customers, you account for the VAT on your sales yourself.
Do I owe VAT on Amazon sales if I am not VAT registered?
No. You only charge and owe VAT once you are VAT registered, which is required once your VAT taxable turnover passes £90,000 in any rolling 12-month period. Below that you can register voluntarily, but you are not obliged to.
Where does the VAT on my Amazon sales go on my VAT return?
The VAT you owe on sales (output tax) goes in Box 1, and your net sales value goes in Box 6. You reclaim VAT on your costs, including Amazon fees and stock, as input tax in Box 4, which reduces what you actually pay over to HMRC.
Work out your Amazon VAT with confidence
Pulling the VAT out of your selling price is simple once you know the 1/6 fraction, but the stakes rise fast across thousands of orders, mixed VAT rates and the odd deemed-supplier sale. If you want your Amazon output VAT calculated correctly, your product liabilities checked, and your returns filed under Making Tax Digital without second-guessing, talk to us. Book a call with a Zmartly accountant and we will make sure every pound of VAT lands in the right box.
