Sales from third parties consist of more than 50% of Amazon total sales. Even though most of them keep their finance and tax issues tidy, there is still a large part of them not properly informed and run the risk of future tax and trading issues.
In this article, we will focus on sales accounting. The reason we specifically refer to Amazon and its sellers, is because its methodology of bookkeeping is to a certain extent different and lack of proper understanding and use can cause tax issues.
It is important to mention that this article does not apply to those selling only occasionally (meaning those whose sales are not of trading/commercial and business nature). To clarify what exactly trading activity is and what is not, please refer to each country’s relevant legislation (in this case, England).
Usually, sales range plays the crucial role in defining this. For example, there is no trading activity if you simply sold your old TV or smartphone. In any case, it is recommended that you consult your accountant.
In this article, we will refer briefly to the following points:
➤ Business activity ➤ Invoices ➤ VAT ➤ Taxation ➤ Buy - Sale example ➤ Disclosure of seller’s details to tax authorities
In order for anyone to trade with Amazon, they must hold trading status, as any other method is not accepted.
There are also many practical reasons for trading status other than legal issues. For example, to have the right to charge and submit VAT, one must hold trading status. Otherwise, the VAT number cannot be issued.
If you sell a product / service without charging the required VAT, you deprive the state from receiving money it is legally entitled to, based on tax legislation. You are then automatically running the risk of facing consequences ranging from paying fine to prosecution.
Only a legal entity or registered as self-employed person entitled to issue an invoice.
Usually, when one sells a product or a service, they issue an invoice to the buyer with the relevant and necessary details of the purchase. With Amazon however, although this process is technically the same, in terms of presentation it is quite confusing for many new sellers, buyers and some times even for accountants. The main reason is because it is a relevantly new trend of business activity and many still lack the relevant experience.
Since invoices are highly important for bookkeeping, basic knowledge of accounting (including tax law provisions) and its main principles is highly recommended so that direct or indirect taxes are calculated accurately and paid off in a timely manner.
Generally speaking, Amazon invoices are given to the sellers quite “passively”. This means that invoices are indeed issued but they are not updated separately for every sale. To put it simply, invoices can be found in a special section of the account but are not individually sent, so for the seller to view them, they have to enter each section separately.
The idea for Amazon is to simplify the seller’s updates by issuing a finance report on a two-week basis instead of issuing separate invoices, and these reports will also apply for payments. The reports include everything- costs for purchases and supplies, currency exchange losses (or earnings), deductions, net profit etc. and correspond to the total passive invoices in the seller’s account.
Each trader or accountant (if the business have one) may use various ways to calculate all this.
If you store, sell or transport products to many countries of the EU, you may need to register your VAT in all these countries. In this case, you will need to submit VAT in every single country either separately or collectively through a government mechanism. For further information, please speak to your accountant.
VAT registration is sometimes needed even if you trade only in the UK. This depends mainly on the turnover of the business.
Important points to know:
a) A criterion for registering is not only the amount of transactions but also the nature of the goods to be sold.
b) VAT number should not be confused with the company registration number (CRN). In Greece for example, there is only one number for both uses, which confuses many.
The amount of tax you will have to pay depends on the nature of your business, i.e. whether you are self-employed (physical entity) or you run the business though a company (legal entity).
Which one of the two is better for your business activity depends mainly on the turnover of your business. Other aspects will also have to be considered, such as, insurance contributions, accountant support expenses etc. For further information, please consult your accountant.
BUY - SALE example
DISCLOSURE OF SELLER’S DETAILS TO TAX AUTHORITIES
Amazon has been scrutinised by tax authorities since 2016 to clarify who trades illegally avoiding paying tax and who meets the legal requirements submitting the relevant financial and tax reports.
To put it simply, if one wishes to pursue trade activity with Amazon, they must hold trading status. This means, trading either as a self-employed or through a company (legal entity).
Attention! If tax authorities find any law violations during controls, Amazon is obliged to disclose the seller’s details. Therefore, it is highly important to be very accurately informed and meet the legal requirements of a trader before you start selling through Amazon. For further details, please speak to your accountant.
Translated / Edited by, Apostolia Nestoratou
© 2019 UPECO LTD
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.