Partner (VAT & Duty), James Cowper Kreston, UK
Meera heads up the James Cowper Kreston VAT & Duty services and leads firm services into South East Asia.
She has built up extensive technical knowledge over more than 20 years specialising in VAT taking a practical approach and successfully arguing against HMRC to achieve substantial VAT savings and compensation for clients.
Meera’s experience covers business restructuring (mergers and acquisitions), VAT cost reduction strategies, international cross-border supply chains, partial exemption methods, land and property transactions, film production, charities, VAT planning and mitigation and assisting businesses with disputes with HMRC. With a number of years of experience at HM Revenue and Customs, she brings a range of skills and expertise in inspections and negotiations, valuable to clients.
VAT on UK imports as a non-established overseas business
January 5, 2023
We are often required to offer advice on VAT on UK imports. If your business is not established in the UK and you intend to import goods for resale there, you need to consider your VAT compliance obligations. Your business is likely to be required to register for and pay VAT on the first import of goods and subsequent sale.
What is a non-established overseas business?
Referred to by HM Revenue & Customs (HMRC) in the UK as a “non-established taxable person”, abbreviated to NETP, the overseas business does not have a fixed establishment in the UK. They trade using their overseas entity, absent a UK branch registered at Companies House.
A fixed establishment has all of the following:
• A UK physical location with a degree of permanence;
• Human resources under the control of the overseas business;
• Resources capable of making and receiving supplies of goods or services.
The following characteristics alone do not create a fixed establishment.
• Storage of goods;
• Computer servers;
• Accountants or an agent’s UK address;
• A UK VAT registration number, without the three positive indicators (location, staff, capability);
• Employees moved to the UK temporarily, for a time-specific project.
What different VAT conditions apply to a NETP?
A NETP, cannot make use of the UK VAT registration threshold, whereas a UK-established business can make £85,000 of taxable sales in the UK in any 12-month period, before compulsorily VAT registration. A NETP must compulsorily register for VAT when they make their first taxable sale of goods they import into the UK. If services are provided from overseas businesses to UK businesses, which are subject to the Reverse Charge procedure by the UK recipient, these supplies do not force the overseas company to register for VAT in the UK. Possible business models were available to a NETP selling goods in the UK.
- Import as an owner of the goods into the UK, and register for VAT as a NETP immediately before or after the first sale in the UK.
- Arrange for the UK customer to take title to the goods before they physically arrive in the UK, so the customer is responsible for submission of a UK import entry to HMRC. This model may be unpopular with the UK customer, who gains the responsibility and cost of submission of the UK import entry to HMRC. This model does not work with a “Just In Time” supply model which requires prompt delivery of goods after the order is received, and usually requires local storage of goods in the UK, rather than importing goods to order.
- A commission model, where a sales order received from a UK customer is passed to a third-party UK business, which supplies the goods to the customer. Commission is earned from the UK supplier, a b2b supply of services, which does not require that the overseas business register for VAT in the UK. There are several potential negative commercial impacts for such a model including “poaching” of the customer by the UK supplier, but this model can work for some businesses. This arrangement avoids the need for the overseas business to register for VAT in the UK.
- Enter a formal agency arrangement for VAT purposes, where title to the goods in the UK, for customs and VAT purposes passes to an appointed UK agent. The UK agent acts as if they own the goods, collects proceeds of resale, declares the VAT to HMRC and passes the proceeds to the overseas business, less an agency fee. This arrangement avoids the need for the overseas business to register for VAT in the UK.
What to consider if the NETP registers for VAT in the UK, following the first model above.
- Most NETPs appoint a UK VAT agent to manage the UK VAT registration requirements, although it is not compulsory. There is no requirement to appoint a “fiscal representative” in the UK, so the agent does NOT become jointly and severally liable for the amounts due on the VAT return. The VAT return must be submitted digitally to HMRC using Making Tax Digital (MTD) approved accounting software, so the software of the NETP will probably not meet this requirement.
- If the NETP keeps stocks in the UK and does not import to fulfil a specific order, it needs to ensure that the import valuation on the customs entry is accurate, given that it does not yet have a sales invoice value to match to the incoming goods. The import valuation method for customs cannot, therefore, be Method 1, the price paid or payable, as the NETP is moving their own goods to the UK. Another valuation method needs to be used. Advice from a UK customs/VAT agent should be gathered before import.
- The UK customs import entry needs to quote a UK “Economic Operators Registration and Identification Number” (an EORI). An EU EORI will have no effect. A NETP cannot obtain a UK EORI number as the applicant needs to have a UK establishment. The NETP will need to appoint a customs representative in the UK to be the “importer of record”, who will quote their EORI number on the UK import entry in box 14. This is referred to as “indirect representation”, where the customs agent becomes jointly and severally liable for the custom duties and import VAT. The NETP is the consignee, the owner and the recipient of the goods. The NETP’s VAT number is quoted in box 8 of the import entry and this allows the customs agent to use Postponed VAT Accounting (PVA) for import VAT. PVA allows the NETP to pay no import VAT at the time of the goods arrival, but rather pay and claim (usually the same amount) on their next UK VAT return.
- If the NETP is using the UK as a base for physically selling non-EU goods also to the EU (in addition to UK sales), this potentially could lead to double taxation of customs duty, once on arrival in the UK (dependent upon the HS code in the UK tariff) and again on arrival in the EU (dependent upon the HS code in the EU tariff). If so, one solution is to use the customs import relief termed “Inward Processing”, where the customs duty is relieved if the goods are to be exported outside the UK. Further guidance about how Inward Processing works in the UK can be obtained from a customs duty specialist. The same potential difficulty arises in reverse if non-EU goods are imported into the EU and then subsequently moved to the UK.
Goods sold via an online platform/marketplace
If the platform delivers goods or processes payments, HMRC requires that the marketplace is liable for declaring UK VAT to HMRC. This is a separate topic, but mentioned here in passing.