Amazon Prices Include VAT
Every price a customer sees on Amazon UK includes VAT at 20 percent. When you sell a product for twelve pounds, the customer pays twelve pounds — but only ten pounds of that is actually your revenue. Two pounds goes to HMRC as VAT. If you are VAT-registered, this means your actual selling price is 20 percent less than the number on the listing. Many new sellers miscalculate their margins by forgetting to account for this.
Before VAT Registration
If you are below the VAT threshold and not voluntarily registered, the full selling price is your revenue. A product selling for twelve pounds generates twelve pounds minus Amazon fees. This gives you a pricing advantage over VAT-registered competitors — you keep the full price while they must hand 20 percent to HMRC.
However, once your taxable turnover exceeds the VAT registration threshold (currently eighty-five thousand pounds), you must register. At that point, your effective revenue per sale drops by approximately 17 percent overnight (the VAT fraction of the gross price). If you have not planned for this, it can turn profitable products into loss-makers.
Planning for VAT Registration
Smart sellers plan their pricing with VAT registration in mind from the beginning. When evaluating new products, calculate your margin both with and without VAT. If a product is only profitable without VAT, it will become unprofitable once you register — which means it is not a sustainable product for your growing business.
Some sellers voluntarily register for VAT before reaching the threshold. This allows you to reclaim VAT on your purchases (stock, supplies, services), which partially offsets the VAT you collect on sales. Whether voluntary registration makes sense depends on your specific numbers — consult an accountant who understands Amazon selling.
The Flat Rate Scheme
The VAT Flat Rate Scheme lets small businesses pay a fixed percentage of their gross turnover rather than calculating VAT on every transaction. The percentage varies by industry. For some Amazon sellers, the Flat Rate Scheme produces a lower VAT bill than standard VAT accounting. For others, standard accounting is better because it allows full input VAT reclaim. Run the numbers for your situation or ask your accountant to compare both options.
Pricing After VAT Registration
After registering, you have two choices: absorb the VAT hit by keeping prices the same (reducing your margin) or increase prices to maintain your margin (risking reduced competitiveness). Most sellers absorb the hit rather than raising prices, because competitors set the market rate. This is why planning for VAT from the start is so important — it should already be factored into your product selection criteria.