Understanding VAT in the UK: A Guide to NETPs
ARTICLE HIGHLIGHTS
- NETPs are defined as non-UK residents with VAT obligations
- VAT registration required for NETPs, thresholds do not apply
- Online marketplaces handle VAT, sellers confirm status with HMRC
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NETPs, or Non-Established Taxable Persons, are required to register for VAT in the UK, despite not being residents or having a business established within the country.
The UK's VAT regulations are known for their complexity, presenting a challenge for many business owners, especially those whose operations extend beyond their home countries.
A significant aspect of this complexity arises from the obligations imposed on businesses that, while active in the UK market, are not physically established in the UK.
What exactly defines a non-established taxable person for VAT purposes? How does this designation affect VAT registration and compliance? And what criteria determine whether an individual or entity qualifies as an NETP?
This blog post serves as a comprehensive guide to unravel these questions and more. Let's dive in.
What Is a Non-Established Taxable Person (NETP) for VAT?
In the UK, an NETP is someone who fits into any one of these three categories:
- You’re not normally a resident in the UK in the context of taxes. For example, a person who travels from France to sell goods may be considered an NETP.
- You operate a limited company that isn’t registered in the UK.
- You don’t have a UK establishment. In this context, an “establishment” has specific criteria that must be fulfilled, which we’ll discuss further.
Determining Residency Status
In the context of taxation, HRMC will classify you as a UK “resident” based on how long you’ve been staying in the country during a tax year — between April 6th to April 5th of the following year.
You’re “not normally resident” if you fall under these conditions:
- You spent less than 16 days in the UK during the tax year or 46 days for those not considered normally resident in three previous consecutive tax years.
- You work abroad for at least 35 hours weekly and only live in the country for less than 91 days, with less than 30 days spent working.
VAT Rules for a UK Establishment
If you’re someone who “supplies” goods and services in the UK, you’re subject to VAT. There are some exemptions, like postage stamps and some health services. The main complication comes from working out the place of supply. Determining the “establishment” becomes important because it helps HRMC decide where a supply takes place in the context of taxes.
This understanding helps determine if UK VAT should be charged given how there are differences between businesses established in the UK and ones that aren’t.
Determining if You Have a UK Establishment
Here are the conditions you must meet to have your business considered as established in the UK.
- The place where you make essential business decisions and conduct central administration is located in the UK. In simple terms, your head office or headquarters is located in the UK.
- Your business has a permanent location in the UK, and this location must have the technical and human resources necessary for operations.
- Your business is an incorporated company in the UK and can send or receive supplies from your registered office.
If your business does not satisfy any of these requirements, then it’s not a UK establishment and you’re most likely an NETP.
VAT for NETPs: What To Expect
If you’ve determined that you’re an NETP, it’s time to understand the tax implications. In the UK, you normally have to register for VAT once your taxable turnover exceeds the £85,000 threshold within a 12-month period (on a rolling twelve monthly basis). This rule only applies to businesses that are established in the country.
Those who are classified as NETP and supply goods to the UK may need to register for VAT even if they do not reach the minimum turnover amount. There is uncertainty because registering for VAT still depends on how you supply goods and services to UK customers. For example, those who use an online marketplace aren’t supposed to register for VAT. Instead, it’s the platform that must register, not you.
If you’re someone who regularly visits the country to sell goods, you’ll need to register for VAT as NETP. An example would be a French business owner who visits the country once a month to sell his goods in the popular French markets in Kent. He’d have to register for and remit VAT.
Amazon Is Asking Me To Confirm My VAT Status
If you’re an online seller who fulfils transactions on Amazon, eBay, and other similar sites, you won’t have to register for VAT. However, there are cases when these platforms don’t collect VAT within a given period. In such scenarios, the company will withhold your disbursements until you send the VAT amount that the company should’ve collected in the first place. It can be incredibly inconvenient.
Sites like Amazon will occasionally send its sellers messages to confirm the latter’s VAT status. This practice is more prevalent if the company has determined that you’re an NETP. Do not ignore this message! Instead, follow their instructions to help confirm your VAT status. Make sure to fill out the information with an accountant to ensure a smooth process, especially if you sell on multiple online marketplaces.
Asking for Help
One thing that you can do after you’ve confirmed your VAT status is request refunds from HMRC for the VAT you shouldn’t have paid. A Chartered Accountant will help you in this scenario, especially with the refund process. You can also work with a tax representative to help you track and record VAT as an NETP. A representative can share liability for any VAT debts, so they are a sure way to ensure that you’re making the payments to the HMRC.
FAQs
Wrapping Up: What Is a Non-Established Taxable Person for VAT?
If you’re doing any type of business in the UK without having an established company or residency, you may still be required to register for VAT as an NETP. There are certain exceptions, like those who are selling in online marketplaces. Otherwise, you can work with an accountant or tax representative to help make these processes easier and avoid any inaccuracies.
For more information about UK VAT and taxes, browse our Tax Tips hub.
BEFORE YOU GO...
Before you go, understanding your VAT obligations as a Non-Established Taxable Person is crucial, but it's only the beginning of navigating the UK's VAT landscape. Ensuring you're fully compliant involves more than just knowing your status. Our next article, "Do You Need to Register for VAT? A More Comprehensive Guide," delves deeper into VAT registration, providing you with all the necessary information to secure your business against any compliance issues. Make sure to give it a read to fully equip yourself for successful business operations in the UK.
sidehustles.co.uk one-minute podcast
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Understanding VAT in the UK: A Guide to NETPs
Welcome to the Sidehustles.co.uk One Minute Podcast. In the next 60 seconds, we're sharing a real-world insight from our network of seasoned side hustlers. This quick tip is designed to offer you practical advice that you can apply immediately in your side hustle journey.
Today, we're discussing VAT in the UK and A Guide to NETPs. If you're conducting business in the UK but don't reside or have a registered business there, it's essential to understand your VAT responsibilities. A key takeaway is that even if you don't meet the standard VAT registration threshold of £85,000 in turnover, you might still need to register for VAT as a Non-Established Taxable Person (NETP). This applies particularly if you supply goods or services within the UK, a scenario common for online sellers and international traders. Ignoring this requirement could lead to significant compliance issues and penalties. Therefore, it's crucial to assess your VAT obligations accurately and register if necessary, ensuring your business operates smoothly within the UK market.
That's your one-minute real-world insight. Stay tuned for more!
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