Removal of VAT registration threshold for non-UK business

Removal of VAT registration threshold for non-UK business


Author: Tom Wilde

The Government has published draft legislation to be included in Finance Bill 2012, which would require non-UK businesses making supplies in the UK to register for UK VAT, irrespective of the value of supplies made

The current position

Currently, both UK and non-UK businesses can take advantage of the UK VAT registration threshold which, subject to certain exceptions, only requires a business to register for VAT in the UK when the value of its taxable supplies exceeds £73,000 a year.

The Government first announced in the 2011 Budget that it was seeking to remove the threshold for non-UK businesses.

This was as a result of the European Court of Justice's decision in Schmelz, in which it was decided that a business that did not have an establishment in a member state could be prohibited from benefiting from that state's VAT registration threshold on the basis that the need for effective fiscal supervision justified discriminating against such businesses in this way.

The new legislation

Draft legislation has now been published which, if it remains unamended, will form part of Finance Bill 2012, and will remove the benefit of the UK VAT threshold for non-UK businesses from 1 December 2012.

The new legislation provides that a non-UK business is one which has 'no business establishment or other fixed establishment' in the UK.

Such a business will have to register for VAT if it makes any taxable supplies (irrespective of value) in the UK or has reasonable grounds for believing that it will do so within the next 30 days (except where it will acquire a business as a going concern in which case the liability to register will be the date of transfer).

Notification of the liability to register must be made to the UK Revenue within 30 days of the liability arising.

A business which becomes liable to be registered under the new legislation only ceases to be so liable if the UK Revenue is satisfied that the business has ceased to make taxable supplies in the UK or it has acquired an establishment in the UK.

The UK Revenue may exempt a person from the requirement to register under the new legislation if they are satisfied that the only taxable supplies the business makes or intends to make are zero-rated.

The impact

Concerns were raised during the consultation process that affected businesses may withdraw from the UK market.

However, this would only be relevant to businesses with a relatively small market in the UK whose total supplies are currently below the VAT registration threshold so the actual impact on the UK remains to be seen.

However, one certain effect of the change is that UK customers buying from non-UK businesses not currently registered for UK VAT, but that will have to be in the future, will have to pay higher prices unless the businesses are willing to take a lower margin.