Amazon is withholding payments from hundreds of UK sellers while it conducts new VAT checks; some traders are reporting that they are still waiting to be paid even though they have supplied all the necessary documentation.
Hundreds of small UK businesses that sell on Amazon have found themselves caught up in a nightmare scenario where their income has been withheld by Amazon until they prove that they are a UK business.
Under UK law (since Brexit), Amazon must check that businesses are based in the UK to prevent tax fraud; it is also required to collect and remit VAT on overseas sales. Until this paperwork is processed, Amazon is freezing payments.
Traders are reporting that they still cannot receive payments months after they supplied all the necessary paperwork including documents such as passports or UK VAT certificates. Many say they have been repeatedly asked for documents that they have already sent.
Amazon trader Wyatt Harris told The Telegraph: "We are at the peril of Amazon who are requesting documents, but then requesting the same ones again and either ignoring us or providing standard vague responses."
Amazon traders could lose their businesses
Many small firms are facing devastating cashflow issues that threaten the survival of their businesses. Around 500 small businesses have written to the government's small business commissioner, Liz Barclay, to ask for help. Liz Barclay has asked Amazon to investigate and has alerted HMRC to the problem that sellers are experiencing.
"Something has gone badly wrong here and while Amazon struggles to put things right, sellers - most of whom rely on Amazon for their livelihood - have no income, have had to borrow to pay their bills (including tax and VAT due at the end of January) and are battling mental health issues while facing the potential loss of their businesses. Many have traded on Amazon for many years." Liz Barclay, small business commissioner.
The enterprise minister Kevin Hollinrake has also written to Amazon this month demanding that it unfreezes the funds of sellers. Hollinrake said: "We are writing to Amazon to tell them to unfreeze the accounts until they have a proper process in place. We understand why they are doing it - we need to ensure VAT is collected - but doing it on a knee-jerk basis, especially at a time when there is self-assessment due, is pretty ill-timed."
Some 85,000 businesses sell via Amazon and for many, Amazon is their sole source of online sales. An Amazon spokesman said: "Under UK tax legislation, all online stores including Amazon are required to collect and remit VAT on transactions involving overseas sellers. This legislation requires all sellers to be verified, which may involve additional requests for information about where they are based."
"Small businesses don't have money in reserve to tide them over while they wait. If you can't pay your bills, wages and suppliers you very quickly go bust. There's potential here for hundreds if not thousands of small businesses to go to the wall taking families, homes and lives with them." Liz Barclay.
According to Channel X, an online resource for ecommerce retailers, some traders are being asked to pay VAT for historical B2C sales dating back to 2021 if they can't prove that they are a UK business - including some businesses that aren't VAT-registered in the UK because they turn over less than £85k per year.
Affected businesses can report problems to the small business commissioner.
Written by Rachel Miller.