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Non-UK Businesses Now Required to Register for VAT

From 1 December 2012 new legislation requires all non-UK established businesses selling goods or services to UK customers to register and account for VAT, regardless of the value of the sales they make. The legal and technical name for such a businesses is a "Non Established Taxable Person" ("NETP") which term includes any business be it carried out by individuals, companies, partnerships or whatever.

The legislation was introduced in the Finance Act 2012 in order to comply with a recent ruling of the European Union ("EU") Court of Justice and removes the current £77,000 VAT registration threshold for NETPs selling goods or services into the UK. 

Who is likely to be affected?

This new measure applies to NETPs established or operating in any country other than the UK or the Isle of Man ("IoM"). Note that for VAT purposes - but no other - the Isle of Man is part of the UK.

The EU already has well established though complex "place of supply" and distance selling regulations in place covering trading between member states, so the main effect of this new regulation will be felt by NETPs established in non-EU countries but some EU based businesses could still be caught in the NETP net.

The sorts of business which will be affected include overseas businesses selling goods from a trade exhibition, or traders selling at a temporary market (e.g., a Christmas Market). It could also catch some overseas suppliers of services (for example, an overseas architectural firm providing land-related services to a UK project for a private individual).

Broadly speaking, the new measure will not apply to businesses that ship goods or sell services directly to UK customers from abroad, although some of these organisations may already be required to register for VAT in the UK under a different set of rules.

Note that some items such as books (but not eBooks), magazines, children's clothes and some food products are sold at a special "zero rate" and if all your sales relate to "zero-rated" products, you may apply to be excused from registering even though these are technically taxable supplies.

All vendors of electronic media that can be downloaded from the internet or delivered electronically by email or any other means (including software, eBooks, TV/Video, email marketing, website traffic supplies and the like) who are not currently VAT registered - either in the UK only or under the EU wide "special scheme for electronic services" will be required to account for VAT on their sales of electronic media and should urgently seek advice on their position to avoid penalties or prosecution.

Overseas businesses that sell to their customers from a permanent UK presence will not be affected by the new rules and will not need to register unless their turnover exceeds the normal VAT registration threshold (currently £77,000). However, they would need to consider their UK income or corporation tax obligations. In this respect it should be noted that the Isle of Man, whilst part of the UK VAT system, levies corporate at 0% (zero percent) so some overseas businesses might find it useful to contact us to discuss whether having an IoM presence may not be of assistance to them. They may also find it useful to register for UK VAT in the Isle of Man even if they do not require a UK presence.

How To Register

From 1 December 2012 the UK VAT registration threshold will no longer apply to NETPs who will be required to register in the UK with the Her Majesty's Revenue & Customs ("HMRC") or the Isle of Man Customs & Excise ("C&E") on the earliest date that either:

  • They make any taxable supplies in the UK or IoM
  • They expect to make any taxable supplies in the UK or IoM within the next 30 days.

VAT records must be available for inspection by HMRC or C&E and so NETPs should appoint a tax representative or agent to keep their VAT records and accounts. Carraghyn can put you in touch with such agents.

Once the application has been accepted you will be issued with a VAT registration number which must be quoted on all UK sales invoices. In most cases, you must then charge VAT at 20% of the net sale price of your goods or services, itemising it on the sales invoice. There are complex VAT Invoicing Requirements relating to what information you must show on your invoices and substantial fines if you don't comply.

The VAT you charge must be paid to HMRC or C&E by filing a regular online VAT return (probably quarterly although HMRC might allow longer or shorter periods) and submitting your payment electronically. You may be able to offset UK VAT you pay on costs and expenses incurred here.

If your UK trade is a one off event, you may cancel your VAT registration afterwards. Alternatively, you could leave it open if you have firm plans to sell in the UK again (e.g. at the same event the following year) but you would have to keep submitting VAT returns in the meantime (as "nil returns" if necessary).

How Can Carraghyn Help?

In practice, overseas businesses use a variety of different trading structures to sell into the UK. The VAT "place of supply" rules are fiendishly complicated and it is easy to misunderstand the VAT obligations that arise from doing business here. However James Green & Co, our specialist international tax division, can help by:

  • analysing your business structure to determine whether or not you must register for VAT
  • confirming whether VAT is chargeable on your product and at what rate
  • advising on your eligibility to recover UK VAT paid on costs and expenses
  • assisting with your registration application and dealing any queries HMRC or C&E may raise
  • completing and filing VAT returns and advising on how to incorporate VAT into your accounting system.

If you are considering a longer term trading presence in the UK or in the Isle of Man, we can help you decide on the most effective business vehicle for your operations.

 You can read more tax related articles at our sister website - Link4Business


+5 # This is crazyMiquel Garcia 2013-02-12 22:39
Why do the British do this. It does not make sense to me that I must do paperwork to come to England for a trade show.
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