Clarification on converting from NETP to U.K. established business

Dear HMRC, As a U.K. resident, in 2020 we opened a limited company and registered its VAT. This company operates an e-commerce business by selling on Amazon UK. This company never had employees on PAYE. It’s a small business and it’s always solely operated and managed by the current director at the time. Since 2020 the company was always operated by a U.K. resident. By the end of 2023, the director (the only person that operates the business) moved from the U.K. to another EU country, oblivious about the fact that the company they operate will become a non UK established business. Around April 2024, Amazon informed the current director that they believe the company is a non U.K. established business NETP and will have to pay back all VAT since 2021 that should have been paid by Amazon on the seller behalf. This claim is only partially valid. Yes, the business became non UK based the moment the sole director left the U.K. but they were a U.K. resident until the end of 2023 so Amazon shouldn’t ask for VAT so that they can pay it themselves for the period before the director moving abroad. Question 1: If at the point of Amazon informing the company that they are non UK based, in April 2024, the abroad based director terminated their directorship and the company appointed a U.K. based director to solely manage and operated the business, are we correct to think that the business would reclassified as U.K. established business. Question 2: If the previous director moved abroad between end of 2023 and terminated their directorship in April 2024 so that a UK based director can take over, does it mean the company has to pay Amazon for VAT so that they can pay it themselves just for that period as per UK Ecommerce VAT Legislation 2021?

Question 2 appears to be an issue between you and Amazon. If Amazon are asserting that the Director is overseas since 2021 then on what basis is Amazon arriving at that decision? Amazon may not be correct - and if you are saying the Director only left the UK in 2024 then that would suggest Amazon are wrong - but Amazon are getting their information from somewhere, even if it is wrong. Companies House would usually show the Directors home address (or service address) but either way, Companies House would also show the residency of the Director. When the Director left the UK they should have updated their details with Companies House (both their home/service address and their residency), and maybe they did do this, if they did, then there would be a series of filings on Companies House that would prove the date when the Director left the UK and that should prove to Amazon that the Director left in 2024 and therefore limit Amazon's position to just 2024. Assuming Companies House was not updated, then you will need to convince Amazon as to when the Director became non-resident, you'll need to ask Amazon what evidence they require to prove this, maybe a UK tax return? You also need to find out what information soruce Amazon are using for them to decide the Director is non-resident. Question 1, UK establishment is defined by HMRC as :- 1. the place where essential management decisions are made and the business’s central administration is carried out is in the UK or 2 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 employ a UK resident Director, then it may be possible to meet condition 1 or condition 2 (you only need to meet one of the two conditions). Whether that satisfies Amazon is the issue. A UK resident Director may not be seen as having the ability to make "essential management decisions", if that UK resident Director is not a controlling share holder and if the UK resident Director is operating from their home, then that would need to be reflected on the VAT registration certificate as you can't use a virtual or registered office address for VAT registrations - it might be possible to satisfy Amazon and limit the scope of their assessment to 2024 but this is more a contractual matter between Amazon and yourself, HMRC are not going to get involved in legal disputes.

Hi jamesmks776,
If the company was a UK established business up until 2023 then your business would have had the responsibility of accounting for the VAT over to HMRC.
Amazon are only responsible for account for VAT where your business is a NETP and so it is important to determine if and when your company ceased to be a UK established business.
Please see the rules which determine whether a business is a UK established or a NETP:
Who should register for VAT (VAT Notice 700/1) 9. Non-established taxable persons — basic information
If the UK director moving overseas has changed your business from a UK established business to a NETP then the marketplace would have become liable for VAT at this point.
If your business continued to account for the VAT incorrectly then you should complete an error correction to HMRC and pass these monies over to the marketplace so that they can pass it on to HMRC.
Please see: How to correct VAT errors and make adjustments or claims (VAT Notice 700/45) 4. Correcting VAT errors on a return already submitted
If the appointment of a UK director in April 2024 has changed the status from a NETP back to a UK established business then again your business would be responsible for account for the VAT.
Please see the link as above for the definition of a NETP/UK established business.
Thank you.