Amazon Blog Series: Understanding VAT Returns.

Following on from the last post on the importance of using an Amazon specific accountant, this blog will focus on VAT returns, what they are, when they apply, how they work, how to prepare properly, and my own recent experience submitting VAT returns and being investigated by HMRC.

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What Is a VAT Return?

Once your business exceeds £90,000 in rolling 12-month taxable turnover, you are required by law to register for VAT (Value Added Tax). After being VAT registered, you must submit a VAT return every quarter. The quarter dates may differ depending on when you first registered (for example, Jan–Mar, Apr–Jun, etc.).

A VAT return is a summary of:

• How much VAT you charged on your sales (output VAT)
• How much VAT you paid on your purchases (input VAT)
• The difference between the two

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Do You Pay or Receive a Refund?

After you submit your VAT return:

• If you charged more VAT than you paid, you will owe HMRC money.
• If you paid more VAT on purchases than you collected on sales, you will be reimbursed by HMRC.

It is very common early on, especially during high purchasing periods (such as Q4 or when scaling), to receive VAT refunds because spending often exceeds revenue.

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Preparing Properly for a VAT Return

To ensure smooth VAT submissions, you must stay organised throughout the quarter. Key steps include:

✅ Collect and store every single invoice for your purchases.
✅ Ensure your accounting software such as Xero is kept fully reconciled.
✅ Use a tool like Link My Books to automate Amazon VAT data.
✅ Keep accurate records of all income, fees, expenses and reimbursements.
✅ Track Amazon fees, referral fees, fulfilment fees and storage charges.
✅ Ensure your books are clean before giving them to your accountant.
✅ Make sure all supplier invoices meet VAT requirements (proper company name, VAT number, dates, etc.).

Poor bookkeeping leads to incorrect VAT filings and can trigger investigations or penalties.

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When You Have to Pay a VAT Bill

If your sales have been strong and your buying has been lower in that period, you will likely owe VAT. In this case:

• Make sure you set aside VAT throughout the quarter so you are not caught short.
• Keep a separate VAT holding account if necessary.
• Pay the VAT bill on time to avoid penalties or interest charges.

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When You Receive VAT Back

If your purchasing has exceeded your sales or you have a high spend in that period (often the case for scaling sellers or during Q4), you will receive a VAT refund.

When this happens:

• Ensure your bank details are correctly set up in your business tax account.
• If they are not added, HMRC will send you a cheque, which delays payment and adds unnecessary time to the process.

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My Experience with VAT Returns and HMRC Checks

I have recently had two VAT reimbursements in a row due to increased purchasing. During one of these returns, HMRC carried out a full investigation before releasing the funds.

They conducted detailed checks which included:

• Spot checking multiple invoices
• Verifying supplier information and VAT numbers
• Confirming product purchases matched declared input VAT
• Questioning any details that looked slightly unusual

Anything that looked unclear or even slightly inconsistent was queried. I had to correct or explain several points. This highlighted how strict HMRC can be. Your invoices and financial records must be 100 percent accurate and legitimate.

I will cover invoice compliance in more depth in a future blog, but the key point is this: never cut corners and never submit anything that is not accurate or true, as VAT fraud carries serious consequences.

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