Client Type: E-commerce Seller
Jurisdiction: United Kingdom
Period Covered: 2021–2024
Client Background
A US-based e-commerce seller was advised by a UK consulting firm to register a UK company with Companies House to streamline VAT compliance and marketplace operations. Following that advice, the seller incorporated a UK entity and used the consulting firm’s UK address for business correspondence. This UK address was then provided across platforms such as Amazon, UK vendors, and other business associates—effectively indicating a UK establishment.
Engagement with Prosperlytics
Several months later, the seller appointed Prosperlytics Consultants to manage the books of account and VAT compliance. Our team set up and maintained accurate, timely accounting records and ensured VAT returns were filed efficiently.
At the time of onboarding, Prosperlytics was not made aware that the seller lacked a true UK establishment.
Challenge: Amazon VAT Establishment Reclassification
At the end of 2024, Amazon raised a compliance concern: the seller was unable to provide sufficient evidence to prove an actual UK establishment. This issue arose due to changes in UK VAT rules effective from 1st January 2021, where the burden of VAT collection and remittance differs based on whether a seller is UK-established or not.
As a result, Amazon reclassified the seller as Non-UK Established and raised a significant VAT liability (output VAT) on past sales that had already been remitted to HMRC, holding the seller responsible for the shortfall. The seller had to pay this lump sum amount to Amazon.
As a one-stop solution for international sellers, Prosperlytics provides complete support across accounting, tax and compliance—removing the need for clients to seek help elsewhere.
Our Approach & Solutio
As the seller’ gave goahead to Prosperlytics to proceed with this,:
- Updated the VAT Returns: We helped the seller amend historical UK VAT returns to reflect the corrected VAT treatment and claimed the output VAT from HMRC which deposited in the original VAT return.
- Communicated with HMRC: We submitted clear reasoning and documentation to HMRC to justify our claim and explain the background of the issue.
- Faced Rejection: HMRC rejected the input VAT claim, citing that under UK VAT law, if a business is not UK-established, vendors (including Amazon) should not have charged VAT on services like advertising.
- Claiming Refund from Amazon: Initially, Amazon declined to refund the VAT amount charged on ad spend. However, Prosperlytics engaged in persistent and detailed communication, presenting evidence of incorrect VAT treatment and referencing HMRC’s response.
- Successful Recovery: After several follow-ups and professional representations, Amazon refunded the VAT amount that had been incorrectly charged.
Result
- Recovered a significant VAT amount from Amazon.
- Ensured VAT records and filings were in full compliance with HMRC regulations.
- Helped the client avoid further regulatory exposure and built a solid accounting and tax foundation.