For most businesses in the UK, VAT registration is required when they reach a certain threshold of taxable sales. However, for businesses operating outside of the UK with no physical presence in the country, different rules apply. These businesses are known as Non-Established Taxable Persons (NETPs). In this blog post, we will break down what being an NETP means, when you need to register for VAT, and the obligations associated with VAT compliance.
What is a Non-Established Taxable Person?
A Non-Established Taxable Person (NETP) refers to a business or individual based outside of the UK that must register for VAT in the UK. This can include:
- Sole traders or companies incorporated outside the UK.
- Entities that do not have a permanent establishment within the UK.
It is important to note that businesses with an establishment in the Isle of Man are not considered NETPs and can benefit from the VAT registration threshold.
Defining a UK ‘Establishment’
While there is no formal, legal definition of a ‘UK establishment’ for VAT purposes, certain criteria help determine whether a business qualifies as having a UK establishment. These include:
- The business has central administration and management decisions made in the UK.
- The business has a permanent physical presence in the UK, complete with the necessary resources and staff to carry out taxable activities.
A UK presence does not qualify if the business only:
- Uses a third-party address in the UK.
- Operates a UK warehouse but lacks the required business resources or staff.
- Uses a registered office, virtual office, or serviced office address.
When Should a Non-Established Taxable Person Register for VAT?
NETPs must register for VAT in the UK regardless of their turnover if they are expected to make taxable sales within the UK in the next 30 days. This requirement also applies when VAT reverse charge rules cannot be used. Once registered, NETPs are entitled to reclaim VAT on UK-related expenses.
When is VAT Registration Not Required?
In some cases, NETPs do not need to register for VAT, including:
- When they make VAT-exempt or zero-rated sales to UK customers.
- If they are overseas sellers trading solely to non-business customers in the UK via online marketplaces.
- When they are based in the EU and selling goods or services to non-taxable customers in Northern Ireland.
- When they sell goods or services to VAT-registered businesses in Great Britain, as the buyer can handle the VAT through reverse charge.
How to Register for VAT
NETPs can register for VAT online through HMRC’s VAT registration service. Alternatively, they can send a paper application to:
HM Revenue & Customs
BT VAT
BX9 1WR
Another option is for the NETP to appoint a UK VAT representative or agent. This agent will handle the VAT registration, record-keeping, VAT returns, and VAT payments on behalf of the business.
Consequences of Failing to Register for VAT
If a Non-Established Taxable Person fails to register for VAT when required, HMRC may take action and register the business without their consent. Additionally, a penalty may be imposed, based on how late the registration is, starting from the date the registration should have been completed.
Conclusion
Understanding the VAT requirements for Non-Established Taxable Persons can be complex, but staying compliant with UK VAT rules is crucial to avoid penalties. If you are an NETP planning to do business in the UK, ensure you understand your registration obligations and seek expert advice if necessary to navigate the process smoothly.
