Amazon’s decision to freeze seller funds over VAT compliance has sparked a legal battle.
- Affected sellers could initiate a lawsuit seeking compensation and the release of their funds.
- The involved sellers face severe financial hardship, with some near bankruptcy.
- Amazon partly attributes the issue to HMRC’s changed VAT verification standards.
- Additional resources are being allocated by Amazon to speed up the verification process.
Amazon’s recent actions of freezing funds for sellers unable to prove their VAT status have led to significant unrest within the seller community, triggering potential legal action from numerous affected parties. These sellers, numbering in the hundreds, find themselves in dire financial straits, with some grappling with bankruptcy and severe stress, according to the legal firm Rosenblatt which is preparing the case.
The amount of money in question is substantial, reportedly totalling ‘potentially tens of millions,’ with accusations of wrongful and unlawful freezing of these funds. The objective of the legal action is to obtain compensation for the sellers affected and to compel Amazon to unfreeze the disputed funds.
Earlier this year, issues surfaced when it was revealed that food and drink sellers on Amazon’s marketplace were struggling under the company’s stringent VAT status verification processes. Sellers have described their experiences as nightmarish, likening them to a ‘Kafkaesque’ scenario where they are repeatedly asked to provide the same documentation and are restricted from accessing their inventory stored in Amazon warehouses.
The process adopted by Amazon has faced criticism from numerous quarters, including small business commissioner Liz Barclay, who expressed deep concern over the mental health impact on the sellers involved. ‘The mental health issues I’ve been reading about have brought me to tears on several occasions,’ she stated.
The legislative context for these actions stems from regulations introduced at the start of 2021, mandating online marketplaces to collect and remit VAT for transactions involving overseas sellers. Given the ease with which overseas sellers can establish UK companies and obtain VAT numbers, Amazon, in conjunction with HMRC, has heightened its due diligence efforts to counteract fraud within its marketplace.
Amazon has partly attributed the problem to altered standards by HMRC in verifying VAT status and location, implying a shared responsibility in the situation. In response to the criticism and ongoing issues, Amazon has assured that it has already verified the majority of sellers and is committed to improving and accelerating the verification process by allocating additional resources.
The unfolding situation underscores the complex challenges in regulatory compliance for e-commerce platforms and the significant impact on involved stakeholders.
