Amazon sellers: lost FBA stock is now repaid at cost

When Amazon loses or damages your stock in one of its fulfilment centres before a customer has ordered it, it pays you what the goods cost to buy or make. What they would have sold for no longer comes into it. The change took effect on 31 March 2025. If you still book the payout as a sale, or never told Amazon what your goods cost, you are probably getting both the books and the payout wrong.

Amazon's peak season runs until 14 January, so this is a good time to check.

What Amazon changed

Amazon told sellers in December 2024 that it would reimburse lost and damaged Fulfilment by Amazon (FBA) inventory "based on the product manufacturing cost of the affected inventory", and later moved the start from 10 March to 31 March 2025. In Seller Central the figure is now called your sourcing cost: what it costs you to source a product from a manufacturer, wholesaler or reseller, or to produce it if you make it yourself. It excludes shipping, handling, customs duties and other costs.

You can give Amazon your own cost figure for each product. If you do not, Amazon uses its own estimate, which you can change later. Stock lost or damaged after a customer has ordered it is still reimbursed at the sale price, less fees.

Two things follow. The payout no longer includes the margin you would have made on the sale. And because freight and duty are excluded, it may not even cover what the goods cost you to get onto Amazon's shelves.

What it does to your profit

Illustration, not a real client. Marisa sells ceramic plant pots through FBA from a flat in Ealing. She buys them from a supplier at £6.50 each. Freight and duty to get them into Amazon's warehouse add £1.10 a pot, so her books carry each one at £7.60. They sell for £18.

In November Amazon loses 40 pots in its warehouse and reimburses her.

• If Marisa has entered her cost, Amazon pays £6.50 a pot, which is £260. The 40 pots leave her stock at £304. Her profit falls by £44.

• If she left Amazon's estimate in place and it came out at, say, £5 a pot, she receives £200 and her profit falls by £104.

• What she will never see is the £720 those pots would have fetched at £18 each.

£60 between the two payouts is small on one claim. Across a year of claims on every product, the cost figures Amazon holds for you matter.

How HMRC taxes the payout

The reimbursement is taxable. HMRC's Business Income Manual says a sum from a claim for compensation that is "referable to trading operations" will normally be a trade receipt, and the courts have treated compensation for stock taken from a trader the same way. It goes into your taxable profit whether you are a sole trader or a limited company.

You are not taxed twice. The lost stock was bought for the business, so its cost is already a deduction. In Marisa's case the tax return sees £260 coming in and £304 of stock going out. Only the £44 difference moves her profit.

VAT works differently. VAT Notice 700, paragraph 8.10, says VAT is not due on goods that are lost when you have not supplied them, so stock Amazon loses before anyone has bought it carries no VAT of its own. HMRC's published guidance does not deal with Amazon's reimbursements directly. If Amazon keeps or sells goods it has paid you for, whether damaged stock or lost stock it later finds, the facts have changed, and it is worth having that one checked.

Where the books usually go wrong

Amazon pays reimbursements inside your settlement, alongside sales, refunds and fees. Three mistakes follow from that.

1. Booking it as a sale. Put reimbursements on their own income line, so they do not inflate the sales figure your margins are built on.

2. Leaving the lost units in stock. If the pots stay on the stock list at the year end, your profit is overstated by their cost. The reimbursement and the write-off belong together.

3. Ignoring the gap. If payouts sit well below what the goods cost you to buy, claim after claim, check whether Amazon is still using its own estimate rather than your figure.

This is the line a settlement report hides and a specialist will pull out. It is the kind of reconciliation accountants who work with Amazon FBA sellers do each month.

Before the year end

Enter your sourcing cost against every active product on the Manage your sourcing cost page in Seller Central, using your supplier invoices. A few minutes per product line now is cheaper than a year of payouts based on Amazon's guess.

Then match each reimbursement to the units it replaced and take those units out of stock. If you count stock at 31 December, do it before the count, not after.

And keep the supplier invoices. If Amazon ever asks you to prove a cost, they are the evidence, and they are the same evidence HMRC would ask for.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for ecommerce sellers. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Anastasiya Doicheva on Unsplash.