Amazon could soon face legal action from “hundreds” of sellers on its platform following its decision earlier this year to freeze their funds until they could prove their VAT status.

A case is being prepared for those still unable to access their sales revenue, many of whom are facing bankruptcy and experiencing “immense stress” and “suicidal thoughts,” according to the law firm leading the legal challenge.

According to The Grocer, law firm Rosenblatt said the amounts still “wrongfully and unlawfully frozen” could reach “potentially tens of millions.”

The firm said the action aims to win compensation for affected sellers and force the online giant to unfreeze their funds.

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Back in February, The Grocer reported that food and drink sellers on Amazon’s marketplace were facing potential bankruptcy due to the company’s handling of its legal obligations to verify the VAT status of businesses.

Several sellers described the process as a “Kafkaesque” nightmare, repeatedly being asked to submit documentation they had already provided, while also being prevented from removing their stock from Amazon warehouses and having their funds withheld.

Amazon’s approach to verifying VAT status drew criticism from small business commissioner Liz Barclay, who said at the time: “The mental health issues I’ve been reading about have brought me to tears on several occasions.”

Under legislation introduced at the start of 2021, online marketplaces must collect and remit VAT on transactions involving overseas sellers. Given how easily overseas sellers can establish UK companies and obtain VAT numbers, Amazon and HMRC explained they were increasing due diligence to tackle fraud on the marketplace.

Amazon partially blamed HMRC for the situation, stating that the tax authority had “changed their standards” for verifying sellers’ VAT status and location.

Following the controversy, Amazon told The Grocer that it had “already verified the majority of sellers” and was “taking the situation very seriously, allocating additional resources to improve and speed up the process.”

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