UK Merch on Demand designers: you pay 20% too much VAT on your Amazon ads

Short answer: if you have no VAT number, you pay 20% on top of every pound you spend on Amazon ads for your Merch on Demand designs, and you never get it back. Amazon adds UK VAT to the ad bill of a UK advertiser without a VAT number. A UK Merch designer can register for VAT voluntarily, far below the £90,000 threshold, and then reclaim that 20%. With £1,000 of ads a month, £2,400 a year goes to HMRC instead of staying with you.

For UK designers selling through Amazon Merch on Demand, from HMRC's guidance, the Merch on Demand agreement and Amazon Ads' help pages, checked in October 2026.

Work out what you lose with our free calculator

How much you lose each year

UK VAT is 20%. Without a VAT number, it is a pure cost on your ads:

Amazon charges VAT to advertisers who "haven't provided a valid VAT/GST registration number", and its help pages stop there.

Where Merch designers can advertise

Merch on Demand advertising is by invitation, Sponsored Products only, on six marketplaces. Merch's own page: invited designers get "a single Advertising account that contains the following marketplaces: US, UK, Germany (DE), FR, IT, and Spain (ES)". You can only advertise your Merch products from it.

Each marketplace is billed by a different Amazon company (Amazon Advertising Agreement):

Without a VAT number, Amazon treats you as a private consumer. Its tax guide: Amazon "may be required to collect the standard rate of VAT/GST applicable to your country of residence or business establishment when a VAT/GST ID isn't provided." Amazon Online UK Limited adds 20% to your amazon.co.uk ads, and the UK is on Amazon's list of countries where it collects VAT on ads bought from abroad.

Can a Merch designer register for VAT?

Yes. Below £90,000 you are not forced to, but you can choose to. GOV.UK: "You can choose to register for VAT if your turnover is less than £90,000 ('voluntary registration')." HMRC asks only that you are in business: designs uploaded and earning royalties month after month are a business, a one-off hobby is not.

Your Merch royalties are what make it worth it:

• You license your designs; you sell nothing. The Merch on Demand agreement: "Amazon will be the seller of record for the Products", and Amazon is "responsible for collecting and remitting any taxes imposed on its sales". You are paid a royalty for the rights you grant.
• You grant those rights to a US company. The agreement is "between Amazon.com Services LLC" and you, and the licence is worldwide.
• A licence to a business outside the UK is a supply made outside the UK. For services to a business, "the supply is made where the customer belongs" (HMRC Notice 741A, section 6.3). When a company buys for its whole business, the supply is "made to the business establishment, not the branch" (section 4.1). No UK VAT is due on your royalties.
• The law lets you register on exactly that basis. Schedule 1, paragraph 10 of the VAT Act 1994 covers supplies "made outside the United Kingdom but would be a taxable supply if made in the United Kingdom". HMRC's Notice 700/1 (section 2.9) adds one condition: you also buy taxable supplies from UK VAT-registered businesses. Your amazon.co.uk ads, billed by Amazon Online UK Limited with 20% VAT, are exactly that.

Registered, you charge no VAT on your royalties, and the VAT on your ads becomes deductible (VAT Act 1994, section 26). Merch royalties are paid "inclusive of any taxes", so the one thing to settle before you register, if you want it in writing, is how HMRC sees the royalties from amazon.co.uk sales: its non-statutory clearance service answers that question for your own case.

What changes once you are registered

1. Add your VAT number to Amazon Ads. A Merch advertising account follows the "Vendor or KDP author" path: Administration, Billing, Payment Settings, then the Tax info section.
2. amazon.co.uk ads: Amazon Online UK Limited still shows 20% VAT on the invoice. You reclaim it on your VAT return.
3. Ads on the five other marketplaces: you account for the VAT yourself under the reverse charge. The same amount goes in as tax due and as tax reclaimed, on the same return (Notice 741A, section 5.2). Net cost: zero.

What it costs, and when it pays

You send a VAT return to HMRC, usually every 3 months, and keep VAT records. Budget for software or an accountant. Say that costs £100 a month (our assumption, not an official figure):

Below about £500 of ads a month, registering costs more than it saves. Above it, the gap grows with every pound you spend.

If you also sell shirts yourself (your own shop, a market stall), those UK sales carry VAT once you are registered. Registering pays best when your income is Merch royalties alone.

The limits you need to know

Do not register to get the past back. Two HMRC rules reach back, under conditions:

• A backdated registration. A voluntary registration can be backdated "by up to 4 years" from the date you register, if HMRC accepts it (Notice 700/1, section 3.9). You then account for VAT on any UK sales since that date, and you "cannot change the VAT start date" afterwards.
• Pre-registration services. VAT on services "supplied not more than 6 months before the business was registered" can be reclaimed, under conditions (VAT Notice 700, section 11.3).

Amazon refunds VAT it already charged only with a registration certificate "showing that registration was active during the billing period". Count on the savings from your registration date on.

Your foreign ad bills can push you over £90,000

Ads bought on amazon.com, .de, .fr, .it and .es count toward your registration threshold. HMRC Notice 741A, section 5.7: the value of such services "must be added to the value of your own taxable supplies when determining whether you should be registered". And "even if you make no taxable supplies yourself, you may still be required to register".

At £2,000 a month on amazon.com, that is £24,000 a year toward the £90,000. Above £7,500 a month of ads billed from abroad, on average over 12 months, registration is no longer a choice.

Frequently asked questions

Do I charge VAT on my Merch royalties once registered?

No. You license your designs to Amazon.com Services LLC, a US company, so the supply is made outside the UK and carries no UK VAT.

Can I advertise my Merch designs on Sponsored Brands or Display?

Not through Merch. The Merch advertising account runs Sponsored Products for your Merch products only, on US, UK, DE, FR, IT and ES.

I spend £200 a month on ads. Should I register?

Probably not for this alone: you would reclaim £40 a month, less than a typical accountant's fee. Run your own figures in the calculator.

Before you decide

Work out what you lose with our free calculator, then take the figure to your accountant.

If you also publish on KDP, the same 20% applies to your book ads: UK KDP authors and VAT on Amazon ads. Spending less for the same sales helps too: see how much Sponsored Products ads cost and how negative keywords work.

Sources

• VAT rates, GOV.UK
• Register for VAT (threshold, voluntary registration), GOV.UK
• VAT Notice 700/1: should I be registered for VAT?, sections 2.9 and 3.9, HMRC
• VAT Act 1994, Schedule 1, paragraph 10 and section 26, legislation.gov.uk
• VAT Notice 741A: place of supply of services, sections 4.1, 5.2, 5.7 and 6.3, HMRC
• VAT guide (Notice 700), section 11.3, HMRC
• Non-statutory clearance service, HMRC
• Amazon Merch on Demand Services Agreement (parties, seller of record, royalties, taxes), Amazon
• Promote Your Merch (advertising marketplaces) and FAQs, Amazon Merch on Demand
• Amazon Advertising Agreement ("Amazon Contracting Party"), Amazon Ads
• Understanding taxes and regulatory fees on your advertising invoice, Amazon Ads
• VAT on Electronically Supplied Services, Countries that collect tax on ESS, Register your Tax ID and Tax refunds, Amazon Ads help

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