NETP or UK Established Business

Hi, One of my clients has registered a UK Limited Liability Company in the UK using a virtual address from one of the agents listed at https://www.gov.uk/government/publications/formation-and-company-secretarial-agents/company-formation-agents-and-secretarial-agents The client is the sole director and owner of the company. The client is not a resident of the UK. He sellers products at Amazon while storing products at amazon warehouse. The companies decisions are also made from outside UK. The is no record of the company which is stored at the virtual address in UK. The client was under impression that since he has limited liability company incorporated in UK, his company is a UK Established Business. The client also submitted its first accounts to HMRC few days ago by using services of a freelancer accountant. Recently, the client noticed HMRC directions to Amazon and other online marketplaces regarding VAT. In line with those, the client is afraid that HMRC might classify his company as NETP. Considering his scenario, is it correct that his company is an NETP or not? Your response will assist my client in meeting his VAT liability. Thanks

Generally a UK establishment exists if either i) the place where essential management decisions are made and the business’s central administration is carried out is in the UK or ii) the business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK (ie, employees in the UK). Neither of those conditions sound like they are met based on what you've posted here (no control in UK, no employees in UK). HMRC can accept a company which is incorporated in the UK as being established in the UK, as long as the company can receive business type supplies at its registered office (what HMRC call a principal place of business), if it is a virtual office or Accountants office then it is unlikely to meet the HMRC view of UK establishment as I doubt a virtual office can receive supplies on behalf of the business. As a side note, you are not allowed to use a virtual office or registered office for VAT registrations (whereas you can use a virtual office for incorporation). https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg03550

I am also curious about the answer to this question because where I live, the agents who set up the company in the UK say that we don't need to register VAT unless we exceed the threshold amount, even in this case. Actually, I am also curious about how the application is.

Hi Amazo,
Please see the guidance below to assist you in determining if your client is a 'Non Established Taxable Person':
9. Non-established-taxable-persons (NETPs) — basic information
Thank you.

Dear Jason and HMRC Admin 21, Thanks to both of you. After reading "9. Non-established-taxable-persons (NETPs) — basic information" and Jason's comments, it is clear that my client's UK Limited Company falls under NETP Category. I will highly appreciate if you can answer to my 4 Questions in the same way (chronological order) which are related to VAT Registration and Transfer of Ownership. Background: The client's company has recently submitted its Accounts to HMRC. As an NETP, the client was supposed to register for the VAT when his UK Limited NETP Company started making any taxable supplies in the UK, regardless of their value and including supplies of digital services (https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat/vat-notice-7001-should-i-be-registered-for-vat#Taxable-supplies). The client did not follow this guideline as he was under impression that his company is UK Established Company (which was not the reality). Future Strategy: My client is planning to transfer the owner of the UK Limited NETP company to a UK resident. In this case, the new Owner (UK Resident) will register this company using its physical permanent address with HMRC for VAT and the company will convert into UK Establishment. My client is ready to pay all the penalty and Due VAT to compensate the new owner because my client did not register for the VAT registration at the right time from its first taxable supply. The total duration from first taxable supply is 16 months. Question 1 - Will my client subject to 15% penalty of the net VAT due? (https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat/vat-notice-7001-should-i-be-registered-for-vat#Taxable-supplies)? Question 2 - The client has stock of imported products (purchased almost 2 months ago) stored at online marketplace Warehouse. Also, the client has paid approx.. GBP 3,000 VAT during the last 5 months to online marketplace for providing services. If the client registers for Standard VAT, he will be able to recover the Import VAT on these 2 months stored product + 5 months VAT paid to Amazon for services? (https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses) Question 3 - If the client registers for Flat VAT Rate, in this scenario, the client will NOT be able to recover the Import VAT on these 2 months stored product + 5 months VAT paid to Amazon for services? (https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses) Question 4 - After the successful transfer of ownership and registration of the VAT, will my client has to pay any kind of Tax or VAT on the amount he will receive from the new owner for transfer of ownership? Thanks a lot for your time and response.

Hi Amazo,
If you client is registering for VAT late then they are opening themselves up to potential late registration penalties.
Please see the guidance below:
Calculating and notifying penalties
When the client registers for VAT then they are allowed to reclaim preregistration VAT as input tax subject to the conditions below:
Input tax when VAT paid on goods and services received before VAT registration

If the client registers for the Flat Rate scheme then input tax is blocked except for the purchase of large capital items.
Please see the guidance below:
Capital expenditure goods
However, joining the Flat Rate Scheme will not prevent the recovery of preregistration VAT as input tax as subject to the normal rules.

 

This is a very interesting thread, and I hope someone could clarify something in the following part of it: --- HMRC can accept a company which is incorporated in the UK as being established in the UK, as long as the company can receive business type supplies at its registered office (what HMRC call a principal place of business), if it is a virtual office or Accountants office then it is unlikely to meet the HMRC view of UK establishment as I doubt a virtual office can receive supplies on behalf of the business. --- Could someone please provide the precise definition of "supplies" in this case? For instance, if the company has a registered office in the UK provided by one of many formation companies, and it can receive official correspondence and other letters at that office (and the company deals in "print on demand", so no real goods are ever stored by the company itself), would it still be treated by HMRC as NETP if the sole director moved to EU? Thanks.

Hi HMRC will only accept that a business is established in the UK if the business is incorporated with Company's house and it does receive supplies at it's registered office. Although there is no precise definition of what these business type supplies would be, the supplies would have to be of a kind that helps or allows the business to trade. The receipt of correspondence for example would not be deemed 'a supply'. Thank you

Hi, I am a non-resident director of a limited company registered in the UK. I operate as an FBA seller on Amazon UK, using Amazon's warehouses for storage and fulfilment. I am in the process of VAT registration and am unsure how to answer the question regarding fixed establishments. I have no physical presence in the UK and manage my business remotely. Given that I am a non-resident director, should I select the option "The business has at least one fixed establishment in the UK or Isle of Man" or "The business has no fixed establishment in the UK or Isle of Man" for the question regarding fixed establishments? Additionally, I have heard conflicting information about using an accountant's address for VAT registration. Some agencies have suggested that I need a physical address inside the UK that is accepted by HMRC. Could you please clarify if this is a requirement for non-resident businesses? or I can use my personal address where I live outside the UK? Thank you for your guidance.

Hi,
When completing the VAT application it is important to decide whether you are a UK established business or a non established business. If you have a company in the UK which is incorporated in the UK with Companys House then you would be a UK established business if the company is able to make or receive business supplies at its registered business address. A registered, serviced or virtual office alone is not enough to create a business establishment.
Therefore, if you have no physical presence in the UK you would be classed as a NETP and so select the option 'The business has no fixed establishment in the UK or Isle of Man'.
If you are a NETP, then we can accept your personal or business address overseas or you can appoint a tax representative. You can see guidance here:
Non-established taxable persons — tax representative and agents
Thank you.

Dear HMRC Admin, Thank you for your previous assistance. I have reviewed the NETP VAT registration guide you provided. I still need more help please with these points: 1. During the registration process, I encountered a message stating that the details I provided do not match HMRC records. May I inquire about the potential reasons for this discrepancy, as I used the exact information used to incorporate the company? 2. Choosing a Trading Name: In the business details section, I am unsure which name to use for "Trading Name." Should I utilize my company name, brand name, or the Amazon store name? Currently, I use both my company name and brand name for sales that are done by the Amazon platform only. 3. Business Address Selection: When entering the primary place of business address, should I provide my address outside the UK or the company's registered address? 4. Future Plans for Overseas Sales: The question "Will the business send goods directly to customers from overseas countries?" currently applies to my situation. However, I may consider this option in the future. How should I answer this question? 5. Acceptable Proof of Address: The online form requests specific documents, including a passport/ID and two additional items from a list. While a bank statement isn't explicitly listed, could I submit it due to its easy accessibility? As per this forum discussion: https://community.hmrc.gov.uk/customerforums/vat/f8b11587-8d22-ef11-a81c-002248c5d744#948e896a-aa24-ef11-840a-6045bdcf6d85. A bank statement can be accepted if it includes my name and address. Thank you for your patience and understanding.

Hi,

1. Please speak to our VAT online services team regarding this: Get help using VAT online services 
2. You can choose a separate trading name for your business but this is optional. Any trading name(s) you do have for your business, please make this known on your application.
3. Please provide your principal place of business.This could be in the UK or outside the UK.
4. Please answer the question in terms of what you are doing at the moment.
5. A bank statement is an acceptable form of evidence to provide to us.

Thank you.