The Amazon FBA Tax Trap: 5 Common Mistakes Costing UK Sellers Thousands in 2025

Selling on Amazon FBA in late 2025 offers UK limited companies a powerful logistics engine, but it also steps you into a complex web of VAT compliance. For UK brands scaling domestically or expanding into Europe, Amazon FBA VAT compliance is now a critical risk to profit margins.

Many sellers assume that because Amazon is a "Marketplace Facilitator," the tax headache is handled. This is a dangerous misconception. While Amazon collects VAT in specific scenarios (like for overseas sellers), for a UK-established business, the legal obligation to register, report, and reconcile usually remains with you.

Misunderstanding these rules isn't just a clerical error; it’s a direct hit to your bottom line. HMRC and EU tax authorities are increasingly aggressive with digital audits, and a back-dated VAT bill can wipe out a year’s worth of growth.

Here are the five most expensive pitfalls we see for UK sellers in 2025, and how to avoid them.

1. The "Rolling 12-Month" Threshold Trap

The UK VAT registration threshold stands at £90,000 (frozen at this level since April 2024). The most common mistake new FBA sellers make is waiting until their accounting year-end to check if they’ve breached it.

The Trap: HMRC does not look at your financial year; they look at a rolling 12-month basis.

• If your turnover from any consecutive 12 months hits £90,001, you must register within 30 days.
• The "30-Day" Forward Rule: Even if your past sales are low, if you land a large wholesale order or have a viral Prime Day that makes you expect to hit the threshold in the next 30 days alone, you must register immediately.

The Consequence: If you miss the deadline, HMRC will backdate your registration. You will owe 20% VAT on all sales made during that unregistered period, but you can't go back and charge your customers for it. That 20% comes directly out of your pocket.

‍

2. Pan-EU Inventory: The "Stock Location" Trigger

Since Brexit, selling to Europe has become harder, but services like Amazon’s Pan-EU FBA still make it attractive. However, many UK sellers confuse the OSS (One Stop Shop) scheme with holding stock.

The Trap: You might register for OSS to handle your cross-border sales to EU customers. But OSS only covers sales. It does not cover storage.

• If you enable Pan-EU FBA and Amazon moves even one unit of your stock to a warehouse in Germany, France, or Poland, you have created a taxable presence in that country.
• Inventory = Immediate Registration: Unlike sales thresholds, holding stock in an EU country typically requires immediate local VAT registration in that specific country.

The Strategy: Before enabling Pan-EU or "Multi-Country Inventory," ensure you are ready to pay for VAT registrations in every single country Amazon stores your goods.

‍

3. Postponed VAT Accounting (PVA) Errors

If you import goods from China or outside the UK to Amazon FBA warehouses, you likely use Postponed VAT Accounting (PVA) to avoid paying import VAT upfront at the border.

The Trap: Many sellers (and inexperienced bookkeepers) forget to account for this on the VAT return.

• The Double-Count: Some sellers see the "Import VAT" on their shipping invoice and claim it as a deduction, but forget they never actually paid it in cash (because they used PVA). This is effectively stealing from HMRC and triggers instant penalties during audits.
• The Missing Entry: Conversely, if you don't download your Monthly Postponed Import VAT Statement from the HMRC portal, you might forget to include the figures on your VAT return entirely, leading to inaccurate books.

‍

4. The Flat Rate Scheme (FRS) False Economy

New sellers often join the Flat Rate Scheme to simplify paperwork, paying a lower % of turnover (e.g., 7.5%) but claiming no VAT on expenses.

Why it fails for FBA in 2025:

• Zero-Rated Exports: If you sell outside the UK, those sales are zero-rated. On the Standard Scheme, you pay £0 VAT. On the Flat Rate Scheme, you still pay your flat percentage on all turnover, including exports. You are essentially paying tax on tax-free sales.
• Advertising & Fees: You cannot reclaim VAT on Amazon Referral Fees or PPC (Advertising) spend on the Flat Rate Scheme. With ad costs rising in 2025, losing the ability to reclaim that 20% VAT on your marketing spend often outweighs the small benefit of the flat rate.

‍

5. Misunderstanding the "Reverse Charge" on Amazon Fees

Amazon charges you fees for selling, FBA, and advertising. Since Amazon UK Services is often billed from a local entity or sometimes Luxembourg depending on the service, the VAT treatment confuses many.

The Trap: If you are VAT registered, Amazon usually does not charge you VAT on fees; they apply the Reverse Charge.

• Your invoice from Amazon will show £0 VAT.
• The Error: Many sellers record this as a "Zero Rated" expense in Xero or QuickBooks. It is not zero-rated. It is a Reverse Charge service. You must account for the notional VAT (add it to Box 1 and Box 4 of your return).
• While the net cash effect is zero, failing to report this turnover correctly distorts your VAT return and can flag you for an HMRC enquiry.

‍

Building Your 2025 UK Tax Strategy

The days of managing FBA taxes on a spreadsheet are over. To protect your brand, you need a proactive system.

1. Automate the Data Flow Connect Amazon Seller Central to Xero or QuickBooks using a bridge tool like Link My Books or A2X. These tools automatically separate:

• Domestic Sales (20% VAT)
• Export Sales (0% VAT)
• Marketplace Facilitator Sales (where Amazon collected the tax)
• Reverse Charge Fees

2. Monthly Threshold Checks Don't wait for your accountant. Set a recurring reminder on the 1st of every month to check your "Rolling 12 Month" turnover.

3. Validate Your Supply Chain Ensure your freight forwarder has your EORI number and VAT number so your imports are cleared correctly using Postponed VAT Accounting. Download your PVA statements monthly from the HMRC government gateway—Amazon does not provide these.

Mini-Summary for UK Directors

• £90k Limit: It’s a rolling 12-month test, not a yearly one.
• Stock = Registration: Storing goods in Europe (Germany/France/etc.) requires local VAT numbers, not just OSS.
• Check PVA: Download your import VAT statements from HMRC, not Amazon.
• Avoid Flat Rate: Usually a bad deal for FBA sellers with high ad spend or exports.
• Reverse Charge: Ensure Amazon fees are coded correctly in Xero, not just as "No VAT."

Would you like me to explain how to access your Postponed Import VAT Statements on the HMRC portal, or review if the Flat Rate Scheme is currently costing you money?

About the Author

‍Sam Hoye is the Co-Founder and Managing Director of Social Commerce Accountants. With over 15 years of experience in accounting and business strategy, Sam specializes in helping e-commerce founders, influencers, and social sellers navigate the complexities of digital finance. He is dedicated to providing clear, no-nonsense financial advice to help brands scale on platforms like TikTok Shop, Amazon, and Shopify.

‍