Accounting for Amazon FBA Reimbursements for Lost and Damaged Stock

An Amazon FBA reimbursement for lost or damaged stock is compensation, not a sale. In your books it needs two entries: one writing the lost units out of stock at their cost, and one recording the money Amazon pays as reimbursement income. In most cases the reimbursement is outside the scope of VAT, but it is taxable trading income. Since 31 March 2025 Amazon pays the sourcing cost of units lost before a customer order, which leaves out shipping and customs duty, so each reimbursed unit now usually shows a small loss.

Reimbursements are one strand of the settlement, fee and stock records that have to agree at the year end, and they are the one sellers most often post to the wrong place.

What Amazon Pays Since March 2025

Amazon's UK reimbursement policy now splits losses by when they happen. For stock lost or damaged on its way into Amazon, inside a fulfilment centre or on a removal order, Amazon pays your sourcing cost: what you paid a manufacturer, wholesaler or reseller for the item. Amazon's UK policy says sourcing cost excludes shipping, handling, customs duties and other costs, and that if you do not enter a sourcing cost, Amazon uses its own estimate. The maximum for a single unit is £2,000.

For a unit lost after a customer order, such as a return Amazon refunded but never received back, the old basis still applies: the refund amount or the sale price, less fees and VAT.

Amazon has adjusted these windows more than once, so check the current page in Seller Central before relying on an older deadline. You can dispute a valuation within 60 days of the reimbursement being issued, and Amazon can reverse a reimbursement if the unit is later found.

The practical step is to enter your real supplier price on the Manage Your Sourcing Cost page. If you leave it blank, Amazon's estimate decides what you receive, and sellers on Amazon's UK forums have reported estimates well below what they paid.

Two Entries for Every Reimbursed Unit

The stock write-off and the reimbursement are separate events, and they often land in different weeks. Post the write-off when the inventory adjustment report shows the unit lost or damaged, and the reimbursement when Amazon credits it in a settlement.

Take a unit with a book cost of £10, of which £1.50 is inbound freight and duty. Amazon loses it in a fulfilment centre and pays the £8.50 sourcing cost. You write off £10 and record £8.50 of reimbursement income, a net loss of £1.50. Before March 2025 the same unit would usually have been reimbursed nearer its sale price. Across a year of lost units, that difference is worth tracking as a cost of using FBA.

Some sellers post reimbursements as a reduction in cost of sales rather than as other income. Either is defensible if you apply it consistently, but keep the reimbursement and the write-off visible in the accounts so the margin figures can be explained.

How A2X and Link My Books Post Them

Both main connectors post the reimbursement cash for you. A2X maps the Lost: Warehouse, Lost: Inbound, damaged and customer return reimbursement types to an Amazon Reimbursement income account. Link My Books uses its LMB2: Amazon FBA Inventory Reimbursements category with a No VAT rate for UK VAT-registered sellers.

Neither connector touches your stock. Whichever of A2X or Link My Books you use, the write-off still has to come from your inventory system or a manual journal at each month end. If it does not, the reimbursement shows as pure income and the lost units stay on the balance sheet, overstating both profit and stock.

VAT on FBA Reimbursements

Amazon pays reimbursements without VAT, and in our view no output VAT is due on them. HMRC's VAT manual treats compensation for goods lost while left in someone else's custody as outside the scope of VAT, because there is no supply in return for the payment. Stock lost in Amazon's warehouse fits that description. HMRC has not published guidance aimed at Amazon reimbursements specifically, so this is an application of the general rule rather than a ruling.

A reimbursement for a lost customer return follows the same reasoning. The original sale was reversed when the customer was refunded, and Amazon's payment compensates you for the unit it failed to return to stock.

Corporation Tax and Income Tax

For direct tax there is no doubt. HMRC's Business Income Manual says compensation for the loss of trading stock is invariably a trading receipt, so reimbursements are taxable in the period they are recognised. The matching stock write-off is deductible as part of cost of sales, which is why the net figure, not the gross reimbursement, is what affects your profit.

Reimbursements at the Year End

At the year end, compare Amazon's inventory adjustment and reimbursements reports with your stock ledger. Units Amazon has marked as lost should be out of stock even if the reimbursement has not arrived yet. Reimbursements Amazon has confirmed before the year end but not yet paid can be shown as a debtor. Claims you have filed but Amazon has not accepted should be left out until they are.

Reimbursements also interact with reserves. Money Amazon has credited but is still holding sits in the same balance as other funds Amazon has not yet paid out, so reconcile the clearing account rather than assuming every credit reached the bank. If you would like this set up once and run every month, our Amazon FBA accountants handle the reimbursement and stock entries as part of the monthly close.

Questions Sellers Ask About FBA Reimbursements

Is an Amazon FBA reimbursement taxable?

Yes. It is a trading receipt for Corporation Tax or Income Tax. The stock you write off for the same units is deductible, so only the difference affects your taxable profit.

Do I charge VAT on an Amazon reimbursement?

Not normally. Amazon pays it net of VAT and it is compensation for lost goods rather than payment for a supply, which HMRC treats as outside the scope of VAT.

Why is the reimbursement lower than my cost price?

Because for losses before an order Amazon now pays sourcing cost, which excludes shipping, handling and duty, or its own estimate if you have not entered a sourcing cost. Your stock cost includes those landed costs, so the reimbursement falls short of it.

What happens if Amazon reverses a reimbursement?

Reverse both entries. The unit goes back into stock at its original cost, and the reimbursement income is reduced by the amount Amazon took back.