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No VAT registration threshold for foreign businesses making supplies in the UK

From 1st December 2012, significant changes to the UK VAT registration requirements for non-established businesses doing business in the UK come into effect. These changes may result in your clients now having to be UK VAT registered. Penalties could apply for non-compliance.

If you are doing business in the UK then, with effect from 1st December 2012, you may need to register for VAT from day one. This is a change from the current rule that would have allowed you to generate taxable sales of up to £77 000 before having to register.

Doing business in the UK is different to doing business with the UK, but essentially means that you are generating revenue from supplies made in the UK, whether that is goods or services. However, you do not need to be established in the UK to be making supplies in the UK. In fact, the rule change is specifically targeting non-established businesses.

As with many VAT rules it is not entirely straightforward and there are specific conditions that need to be satisfied.

The conditions relevant to UK VAT registration can be summarised as follows:

  • Condition A          taxable supplies are being made in the UK or will be made within 30 days
  • Condition B          those supplies are being in the course or furtherance of a business
  • Condition C          the taxable person does not have a business establishment in the UK or any other UK fixed establishment
  • Condition D         the taxable person is not already registered for UK VAT

Conditions A and C are the ones that are most likely to cause confusion as there are specific definitions concerning “what is a taxable supply?” and “what constitutes an establishment for VAT purposes?”, and each fact pattern will have a unique analysis.

Non-compliance with these rules could trap the unwary and attract penalties.

Finally, the above legislation change does not impact the EU distance selling rules. For these transactions, the place of supply is in the country where the goods are shipped from, provided that neither of the following two conditions is met:

a)      the yearly aggregated net value of the distance sales does not exceed any of the thresholds specific to the countries where the goods are shipped to, or
b)      the seller has not opted to VAT register in and charge the VAT of the country where the goods are shipped to.

For distance sales to UK individuals, this threshold is £70 000.

Member states’ value limit for distant sales

Member state Value limitMember state Value limit 
Austria100.000 €Latvia24.000 LVL 
(36.952 €) 
Belgium5.000 €Lithuania125.000 LTL 
 (36.207 €) 
Cyprus20.000 CY fontLuxembourg100.000 € 
Czech Republic35.000€Malta35.000 € 
Denmark280.000 DKKPoland35.000 € 
(37.528 €) 
Estonia550.000 EEKPortugal31.424 € 
(35.150 €) 
Finland35.000 €Romania35.000 € 
France100.000 €Slovakia35.000 € 
Greece35.000 €Slovenia35.000 € 
Germany100.000 €Spain35.000 € 
Hungary35.000 €Sweden320.000 SEK 
Ireland35.000 €The Netherlands100.000 € 
Italy27.889 €UK70.000 GBP 

Source: RSM International Tax Alert

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