amazon upside down

Amazon sellers have “gone bust” due to the e-commerce giant’s decision to freeze their funds while it verifies their VAT status, the Small Business Commissioner has said.

Last month, food and drink sellers on the marketplace told The Grocer they were facing bankruptcy due to Amazon’s handling of its legal requirement to check the VAT status of businesses. Several reported being trapped in a “Kafkaesque” nightmare, in which they were repeatedly asked to send documentation already supplied, while the option to remove their stock from Amazon warehouses was removed and funds withheld.

Amazon told The Grocer it had “already verified the majority of sellers”, but Small Business Commissioner Liz Barclay warned many were still facing “checks [that] are taking much longer than they were expected to”.

“The mental health issues I’ve been reading about have brought me to tears on several occasions,” she said. “Perhaps you can survive for a few days until the checks are done but many can’t, and some checks have taken weeks. Some sellers have had to shut up shop, make people redundant and some have gone bust.

“Imagine you’re a sole trader or running a small business and you don’t make enough to have to register for VAT. Then you’re told the money that you’d expected to have available to you with which to pay your bills and buy materials to carry on trading, won’t be available while VAT checks on your business are carried out,” Barclay added. “You’d be panic-stricken. Worse still if that’s your household’s only income and you have children to feed.” 

The Small Business Commissioner said Amazon was in the most part “getting things sorted out now” and that the thousands of emails from sellers requesting help she had received had since “slowed to a trickle” and chiefly concerned “fairly complicated cases”.

Some sellers The Grocer spoke to said they could now access their Amazon account funds, but were struggling to get their tax status confirmed by HMRC, keeping their operations in limbo.

“I think my company’s going to last until early autumn,” a business owner, selling petfood on Amazon’s marketplace, told The Grocer. “Amazon and HMRC are in no hurry. They don’t realise the damage it’s doing to business.”

Under legislation introduced at the start of 2021, online marketplaces are required to collect and remit VAT on transactions involving overseas sellers. Because of the ease with which overseas sellers can set up a UK company and obtain a UK VAT registration number, Amazon and HMRC said they were moving to tackle this fraud by increasing due diligence on sellers on the marketplace.

Amazon told The Grocer it was calling on HMRC to improve the process for both online marketplaces and sellers.

“More than two years ago after this law first came into effect, we informed HMRC of our approach for verifying a seller’s VAT status and location, and they did not raise concerns,” an Amazon spokesman said. “HMRC have since changed what their standard is for UK incorporated and tax registered sellers, and that has forced us to take steps in recent months that’s created more work for Amazon and our selling partners.

“We’ve worked as quickly as possible to listen to sellers on what’s been challenging, and then to resolve the issues that we can control, while encouraging HMRC to help fix this long-term with clear and consistent published guidance that will make this process smoother for sellers. We’re also asking HMRC to perform more checks upfront to prevent the risk of VAT fraud through UK VAT numbers they have issued, which would remove much of the challenges for everybody,” he added.