Tax
VAT
When does a foreign business need to register for VAT in the UK?
Overseas businesses looking to trade in the UK can do so in a range of ways, all with differing tax implications
Words: Robert Salter, director, Blick Rothenberg Illustration: Michał Bednarski
The key points
The key points
Foreign businesses looking to increase their UK market share or presence have a variety of options open to them, with differing VAT implications.
Businesses considering entering the UK market need to consider the routes available to them and how to manage their tax obligations that flow from those routes.
The key factor is the business’ operating model, particularly where the goods and/or services are supplied.
As with many issues involving tax, while the question may be ‘simple’, the answer seldom is. In practice, a range of variables can influence whether UK VAT registration is advisable or required and the correct means of accounting for it – for example, whether the business is supplying goods (or services) in the UK or from overseas, or whether the ‘reverse charge’ applies, moving responsibility for VAT accounting to the customer. Different rules can also apply for imports from the Channel Islands, or when one is dealing with clients based in Northern Ireland.
While one cannot deal here with all the scenarios that could arise, as a starting point this article examines some of the common models through which a foreign business might operate in the UK and considers the VAT registration position in those core scenarios.
Q What if the foreign business sets up a UK subsidiary company?
Many businesses from overseas will, at least if they are specifically focusing on developing and growing their UK market presence, arrange to set up a subsidiary company in the UK. If this happens, the VAT position for that UK business may be quite straightforward, and VAT registration will depend upon whether it is going to have a turnover of £90,000 or more of supplies that are taxable for VAT purposes.
If the total value of its supplies of VAT-able goods and services to UK customers, together with taxable services received from overseas suppliers or a parent company, is in excess of £90,000, it would need to register for VAT in the same way a traditional, UK-owned business would. Similarly, if its annual turnover was below this threshold, it could still register for VAT on a voluntary basis if it wished, as per a regular UK business.
Alternatively, some foreign companies might, for example, arrange for goods to be stored in the UK for sale to UK-based clients, and this structure can be enough to trigger a VAT registration requirement for that foreign business in the UK.
Q What happens if there is no UK entity established and no VAT presence (e.g. a company warehouse) in the UK?
Clearly not all foreign businesses will establish a UK subsidiary or similar presence and formally operate from the UK in the manner described above. For example, some businesses might sell their goods in, say, France to a UK company, with the UK business then having ownership of the goods and taking responsibility for importing. Other businesses might be operating in the EU but proactively selling into the UK via Amazon or other online facilitators (so-called online marketplaces in HMRC’s terminology), as a way of selling to UK consumers. Alternatively, other EU or foreign companies might simply be selling to UK businesses through their own website or other means. In either case, the goods are remaining in the home jurisdiction prior to sale.
Q Who are the UK clients of the foreign businesses?
Are they all VAT-registered businesses or are they private clients and non-VAT registered businesses? Are all sales direct from the foreign business or is an online marketplace involved?
The good news is, if the foreign businesses only sell goods directly to VAT-registered UK businesses, they shouldn’t have to register for VAT if the goods are outside the UK at the point of sale. This has been confirmed by HMRC.
In effect, if the goods are sold overseas, for example, and the UK business is VAT registered, it will be the responsibility of that VAT-registered business to account for the UK VAT when it brings the goods into the country (in effect on a type of ‘reverse charge’ basis).
Different rules can also apply for imports from the Channel Islands, or when one is dealing with clients based in Northern Ireland.
Q What are the rules if the goods are sold into the UK by the foreign business via an online marketplace?
An online marketplace is a website or app involved in (a) setting the Ts&Cs of how goods are supplied to customers, (b) authorising and facilitating payment, and (c) the ordering and/or delivery of the goods. eBay and Amazon would be typical examples.
If the importing is being done via an online marketplace, the obligation to charge and account for VAT will sit with the online marketplace. That is, it is obliged to account for the VAT at the point of sale, unless the sale is a business to business (B2B) sale and the UK client business has provided its VAT number as part of that transaction.
Q What if the foreign business has ownership when the goods are actually in the UK and/or it is selling to private clients?
Clearly, not all businesses will be using an online marketplace or selling ‘ex works’. For example, you might find that the foreign business transfers the products to the UK on a pre-sale basis. In this case, it will be liable to register for VAT in the UK and take responsibility for accounting for that VAT at the time the goods are imported to the UK. These requirements can still apply where the foreign business has ultimately used an online marketplace for sale purposes. This is the case even where there is no wider ‘presence’ of the business in the UK.
Q Will the position differ if the foreign business is supplying ‘services’ rather than goods?
In general terms, the answer is yes. That is, most services provided from overseas to UK-based clients will not incur a direct VAT registration or charging obligation on the foreign business. In most circumstances, any UK VAT to be accounted for will be the responsibility of the business client under the ‘reverse charge’. Where that client is not already UK VAT-registered, it may be required to do so, depending on the value of the services received.
However, this is the general rule and certain services by their nature (e.g. catering services, admission to events or passenger transport services) would still be liable to UK VAT and create an obligation for that foreign business to register for VAT in the UK.
Conclusion
This article considers the position from a high-level perspective and therefore cannot address every scenario that one could face in reality.
However, perhaps the key point is the need to understand the detail of the business’s operating model, including where the goods or services are supplied, how this takes place and who the clients will be. Moreover, given that business arrangements and contracts will often change and evolve as a business develops, it is important to continually review and re-evaluate these arrangements, to ensure that any change in the VAT position is captured and any action required is taken on a timely basis. Otherwise, it is all too easy for businesses to be caught by a ‘nasty surprise’ when it comes to VAT.
