Normally, VAT registration threshold applies, but not in the case of traders without UK establishments, who, for VAT purposes, are termed non established taxable person (NETP). From 2012, they were opted out of the regular VAT rules.
What is a non established taxable person? When do they need to register or not? What are their obligations, in general? These and more will be answered below. Read on.
Non Established Taxable Person (NETP) Definition
Who is non resident taxable person (NETP)? This designates a sole proprietor or corporate body liable to register for VAT in the UK, as they meet the following criteria:
- They live outside the UK.
- Their company is incorporated outside the UK.
- They have no ‘establishment’ in the UK.
If their establishment is in the Isle of Man, they are automatically not considered as NETPs, which means they can benefit from the VAT threshold. An NETP overseas seller has a separate definition and VAT requirements. See Gov.UK’s guide.
UK Establishment Definition
There is no specific definition of a UK ‘establishment’ for value added tax purposes. It exists when it meets the following:
- Its central administration and crucial management decisions are done in the UK.
- It has a permanent physical presence in the UK, equipped with the human and technical resources necessary for making or receiving taxable supplies.
There are several considerations as to whether a business is considered a UK establishment or not. When it lacks other necessary components, it will still not qualify as one, such that:
- It uses a third-party UK address and merely exists as an ‘incorporated’ UK company.
- It uses a UK warehouse for its goods but lacks additional business resources or staff to establish a UK presence.
- It has a registered, serviced, or virtual office address.
When to Register for VAT
Non established taxable person VAT registration is required regardless of the business’ turnover. Traders who anticipate generating taxable sales in the UK within the next 30 days, especially when it cannot be handled under the VAT reverse charge regulations, must notify HMRC as soon as possible. However, being VAT-registered, they can reclaim VAT on UK-incurred expenses, regardless of the type of supply.
When Not to Register for VAT
There is no need to register for VAT when the non established taxable person:
- makes VAT-exempt or zero-rated sales to the UK.
- is an overseas seller exclusively trading to non-business customers in the UK via an online marketplace.
- is from an EU member state selling goods and services to a non-taxable customer in Northern Ireland.
- sells to VAT-registered businesses in Great Britain, as the receiving business will manage the VAT through reverse charge.
How to Register for VAT
Non-established taxable persons can either register themselves through HMRC’s online VAT registration service or send paper applications to the following address:
BT VAT
HM Revenue & Customs
BX9 1WR
Alternatively, NETPs can appoint a UK VAT representative or agent to handle their VAT affairs. These representatives are liable for maintaining VAT records and accounts, making VAT returns, and paying VAT on their clients’ behalf.
What Happens with VAT Non-Compliance
If a non-established taxable person fails to register for VAT when obliged to, HMRC may register them without consent and impose a penalty. The penalty percentage is based on how late the registration is, from the day when the registration was supposedly done to the date HMRC received the application or became aware of the need to register.
Visit relevant article: VAT Fraud.
Why Legend Financial for Your VAT Affairs?
Cross-border taxation, especially UK VAT, can be very complex to handle, even for seasoned businesses. When you or your corporate entity is considered a non established taxable person, you will have to deal with VAT requirements unless you choose to build a UK establishment (and earn below the registration threshold).
Legend Financial is your go-to tax consultant for this matter. We have served a lot of individual taxpayers and businesses for over ten years regarding their VAT obligations. For your tax, accounting, and business development needs, call us today!
