Amazon sellers teetering on the brink of insolvency due to VAT verification fiasco

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Food and beverage vendors on Amazon are sounding alarm bells over the looming threat of bankruptcy, all stemming from the ecommerce titan’s decision to withhold their funds until they can substantiate their VAT status.

Despite furnishing Amazon with evidence confirming their UK-based operations, numerous sellers find themselves ensnared in what they describe as a “Kafkaesque” nightmare. They’re caught in an endless cycle of automated requests for additional proof, compounded by the removal of the option to withdraw their stock from Amazon warehouses.

Amazon has asserted that it had “already verified the majority of sellers” and was “taking this situation extremely seriously, committing additional resources to improve and speed up the process”.

However, for seller Guy Wilmot and countless others, the ordeal persists. Wilmot, whose enterprise rakes in over £1 million annually through Amazon sales of brands like Brown Bear, Bird & Wild, and Decadent Decaf Coffee, had approximately £25,000 locked in his Amazon account since the previous month. While that sum has since been released, much of the account’s functionality remains disabled, with inventory marooned in Amazon’s fulfilment centres without a means of retrieval.

Wilmot lamented the relentless barrage of automated emails demanding the same documentation repeatedly. “We’re stuck in a loop and beginning to question if any of this is overseen by humans – it feels more like an out-of-control Amazon AI bot,” he remarked. “Amazon is acting as judge, jury, and executioner – and it appears there’s no oversight.”

Another business proprietor, selling pet food on Amazon’s platform, said that they were still unable to access funds from their Amazon account, placing them squarely on the precipice of financial ruin. “The process of dismantling hundreds of companies has only just commenced,” they warned.

A specialised ingredient brand echoed these sentiments, disclosing to The Grocer that despite repeatedly submitting the requested documentation, they were still awaiting payments critical for the continuity of their business.

“It is an utterly unacceptable situation given Amazon’s scale and the resources at their disposal to promptly verify sellers,” the brand owner lamented.

Additionally, the brand owner criticised Amazon’s support infrastructure, noting the disabling of telephone contact options and the propensity to abandon chat messaging conversations. “The seller support is futile,” they asserted. “Amazon wields too much power.”

Legislation introduced at the outset of 2021 mandates that online marketplaces collect and remit VAT on transactions involving overseas sellers. In response to the ease with which overseas sellers can establish a UK presence and acquire a UK VAT registration number, both Amazon and HMRC have intensified scrutiny on marketplace sellers to combat tax fraud.

An Amazon spokesperson stated, “To comply with VAT legislation and combat tax fraud, we recently initiated a process to perform additional verification of the VAT status of all sellers, in the UK and abroad, that sell on our UK store.”

While expressing regret for any issues encountered during the verification process, the spokesperson urged government intervention to enhance public information for determining a seller’s UK-based VAT status.

Amazon’s approach to verifying sellers has drawn ire from Small Business Minister Kevin Hollinrake and Small Business Commissioner Liz Barclay, who met with Amazon to express their concerns and the government now has a dedicated page to this Crisis Scandal.

Barclay deplored the prolonged verification process, warning of its potential to drive businesses to the brink of collapse. “If those firms don’t gain access to their funds urgently, we will witness firms going under with all the attendant consequences,” she cautioned.

In response to the crisis, some sellers have voiced intentions to explore alternative sales channels after losing confidence in Amazon. However, as Wilmot pointed out, such a transition is easier said than done. “We don’t have a choice. We’ll collapse without Amazon,” he lamented. “Many sellers still have their account payments frozen and are experiencing tremendous stress, with sleepless nights and resorting to heavy drinking to cope. It feels deeply unjust.”

In a Facebook group titled ‘Amazon UK Disbursement Deactivated Disaster’, established in the aftermath of the debacle, longstanding sellers vented their frustrations against Amazon.

The prevailing sentiment echoes one commenter’s comparison to the Post Office scandal: “The computer says NO, and it’s a harbinger of the future if we allow pervasive technology and AI to take control. Sellers are treated with disdain and struggle to engage with Amazon on a human level.”

For many, the focus has shifted to diversifying their sales channels, yet the dependence on Amazon remains a formidable challenge.