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Aerial view of the exterior of a large Amazon warehouse

HMRC incorrectly bars trader from VAT flat rate scheme


Amazon’s internal stock movement procedures led to a hefty VAT liability for a taxpayer. Rickie Lowery takes a look at the first tier tribunal’s verdict.

21st Jul 2023
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Pierre Andre Divisia (PAD) operated as an Amazon trader. Goods were brought into France from outside the EU and stored in an Amazon warehouse.

Some of his sales were made to UK customers, however as these were under the distance selling thresholds of the time, no UK VAT liability arose. Amazon contacted PAD in early 2018, requiring him to register for UK VAT and he therefore did so, also joining the flat rate scheme (FRS).

Initial queries

PAD contacted HMRC in mid-2019 for help with some VAT queries, including the fact that Amazon had started to move his unsold goods from warehouse to warehouse in and out of the UK. HMRC provided some advice regarding the place of supply rules and similar, but also asked for further details of recent sales and movements.

PAD duly provided these details and HMRC responded by issuing an assessment for £7,612 of unpaid VAT, retrospectively revoking his ability to use the FRS.

An internal HMRC review upheld the assessment, therefore PAD appealed to the first tier tribunal (FTT). The appeal was out of time, but the FTT permitted it.

UK sales

HMRC’s calculations were based on PAD’s sales of goods which were located in the UK and made to UK customers and EU consumers, which both fell within the UK VAT rules. In addition, goods which were moved from the UK without a sale taking place, such as where Amazon moved his goods from a UK warehouse to, say, a French warehouse, were also subject to UK VAT.

The sales led to VAT of £5,853 and the movements £1,803; after deducting the FRS tax he actually paid of £44, this gave the £7,612 assessment.

HMRC justified removing PAD from the FRS based on the fact he had not applied the rules correctly to his historic supplies.

Lack of control

PAD understandably found this quite unfair, as his intention had always been that his goods would sit in a French warehouse and only enter the UK when a sale was made. As he was under the distance trading thresholds, this meant no VAT registration or payments would be required.

Amazon, entirely on their own initiative and without his involvement, had instead moved his goods in and out of the UK, leading to the assessed amounts. PAD emphasised that he had no control over if and when these movements happened.

‘Best judgement’

The FTT were sympathetic to PAD’s position, as first Amazon’s insistence that he register for UK VAT had brought his distance sales to the UK within the scope of UK VAT (although the VAT on these seems to have been missed by HMRC in the assessment under appeal), then the fact they moved goods to and from the UK increased his liability. Unfortunately PAD was still responsible for VAT arising due to Amazon’s actions, despite having no say in them.

With that said, the FTT first considered whether HMRC’s assessments were made to ‘best judgement’ and quickly concluded they were. PAD had made comments that HMRC had made errors, but hadn’t substantiated these claims, and further had not offered any alternative calculations to show that HMRC’s figures were incorrect as they stood at the time.

The FTT next moved on to consider whether HMRC was correct to revoke PAD’s use of the FRS.


Under the FRS rules, PAD had accounted for VAT on a fixed percentage of his taxable UK sales (at least as he saw them), with no deduction for any VAT he had paid on his expenses.

HMRC had terminated his authorisation to use the FRS with effect from the start of the April 2018 quarter, under regulation 55P. This allows such terminations where either it is for the protection of the revenue or where the taxpayer made a false statement in their initial application. There was no suggestion of the latter, so HMRC had to be implying the former.

VATA 1994 Section 84(4ZA) stipulates that a tribunal should not allow an appeal against such a termination unless it considers that HMRC could not reasonably have believed there were grounds for the decision.

After due consideration, the FTT found that HMRC lacked such grounds. It was not clear why HMRC believed terminating PAD’s authorisation could be said to have ‘protected the revenue’, as there was nothing to suggest PAD had done anything abusive or untoward at any stage.

A partial win?

The overall decision was therefore that the taxable sales as calculated by HMRC were correct, but that the VAT due on them should be recalculated using the FRS rules.

Assuming PAD’s input tax was minimal, this decision will hopefully significantly reduce the amount he now needs to pay.

Replies (2)

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By Hugo Fair
21st Jul 2023 17:04

It's so encouraging in an increasingly cynical world to see the high standards that Amazon applies to its concept of customer service!

Thanks (3)
By moneymanager
24th Jul 2023 11:55

'Those whom the gods would destroy, they first make mad'

A [***] up and brewery springs to mind.

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