Online traders face VAT avoidance clampdown

HMRC has written to online marketplace traders as it seeks to reduce VAT avoidance

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As highlighted within Agents update issue 112, HMRC is writing to online marketplace VAT registered businesses to ask for evidence to prove they are established in the UK. If the trader fails to reply, they will be considered as non-established for VAT purposes.

What is NETP and how does it impact them?

A non-established taxable person (NETP) is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated in the UK. More detailed information on NETP can be found on GOV.UK.

A UK establishment exists if either:

  • the place where essential management decisions are made and the business’s central administration is carried out is in the UK, or
  • the business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK.

So, if you have a UK establishment, you are not an NETP. You’ll be registered at the address of your principal UK place of business and maintain your VAT records and accounts at this address for HMRC inspection.

HMRC would normally consider a company which is incorporated in the UK to have an establishment in the UK as long as it’s able to receive business supplies at its registered office.

All NETP businesses who make any taxable supplies in the UK must:

  • register for VAT in the UK
  • account for UK VAT to HMRC.

In January 2021, the law changed making online marketplaces liable for the VAT from sales made by overseas traders on their platforms. HMRC believes that some NETPs who have incorporated in the UK and provided UK address details to marketplaces have avoided marketplace liability rules.

If you represent an online business that meets the criteria to be established in the UK for VAT, and they receive a letter from HMRC asking for evidence, they need to send evidence to show they are UK established along with any other evidence requested.

Agents can also send the completed form from their agent email address shown on the VAT registration application. Agents should also copy the business email address into the email when they send it.

ACCA'S factsheet, International VAT, covers a range of issues, including export and import, new rules of origin for customs duty, e-commerce, cross-border refunds and the Northern Ireland protocol.