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HMRC remove VAT registration threshold for non-UK businesses

German Sausage Stall
I have been discussing the ramifications of the removal of the UK VAT registration threshold for businesses that are not established in the UK from 1st December 2012 with Alexander Altmann, the Head of the Tax Services Department at the German-British Chamber of Commerce and Industry in London.

The removal of the threshold will impact upon various supplies of goods and services by non-UK businesses.  In particular Alexander considered the practice of market traders from other EU countries coming to the UK to sell food and drinks on Christmas Markets during the month of December.  In previous years it has not been necessary for many of these traders to register for VAT in the UK given that their taxable supplies have been less than the UK VAT registration threshold - this will not be the case this December.

Typically what happens is UK businesses organise the Christmas Markets and hire out the land to the traders who then come and erect their stalls. Alexander described to me the fictitious case of a market trader based in Munich planning to travel to Manchester in a refrigerated van with supplies of Bavarian sausages and the equipment to cook the sausages and heat the mulled wine.  He intends buying the sausages in Germany and the mulled wine from a warehouse of a German importer in the UK.

On arriving in Manchester the trader plans to erect his own stall and also offer his services to the UK organiser of the Christmas markets to erect other stalls as well which have to be fixed to the ground.  The UK organiser has advised the market trader of the change in the VAT regulations and recommended that he takes advice from an EU VAT practitioner based in Amsterdam.  The trader has now to consider many things that he has not had to previously.

  1. Does he have to account for UK output VAT on the sales of the hot sausages and hot mulled wine?
  2. Does he have to account for UK output VAT on the services he provides for erecting stalls on behalf of the UK organiser?
  3. What are the implications of transporting the sausages from Munich to Manchester?
  4. Will he be charged Dutch VAT by the EU VAT practitioner?
  5. Will the UK organiser charge the market trader UK VAT for supplying the space to locate his stall?
  6. How should the market trader reclaim the input VAT back on the purchase of the sausages and mulled wine?

Let us deal with each one in turn, and in each case consider the importance of the place of supply.

The sale of the hot sausages and hot mulled wine is in Manchester and therefore the place of supply is the UK. The market trader will have to account for UK output VAT at the rate of 20% in December. Previously he would not have had to register and charge UK VAT when his supplies fell below the UK VAT registration threshold.

The supply of the services by the market trader to erect stalls on behalf of the UK organiser is a land related supply, which is taxable where the land is situated.  It is very tempting to think that the market trader should charge UK VAT on the land related supplies as well but remember he is a non-UK business supplying a service to a UK based business, so different rules apply. For the land related services the market trader raises a reverse charge invoice without charging VAT leaving the UK organiser to account for UK VAT on the supply.

The implications of transporting the sausages from Munich to Manchester are: they should be treated as a cross-border movement of goods; in the context of the German VAT return they should be accounted for as an EU sale and invoiced to the trader’s UK VAT registration number; while in the context of the UK VAT return they should be accounted for as an EU acquisition.  Had he transported the sausages in previous years arguably he should have registered for VAT in the UK in order to account for acquisition tax.  Alexander pondered and thought that since the supply of uncooked sausages in the UK is zero-rated then it would have been very likely that HMRC would have exempted the market trader from registration because there would not have been a UK VAT liability; remembering that the sale of hot sausages was below the UK VAT registration.

The supply of the VAT advice by the Dutch EU VAT practitioner is a supply of a business to business service for which the general place of supply rule applies. This means that the supply is deemed to be taxable in the country where the recipient of the service is based. The market trader will have to accept an invoice without VAT for the advice and account for German VAT on his German VAT return.

The letting of the land by the UK organiser to the market trader is another example of a land related service and the UK organiser will have to charge the standard rate of 20% UK VAT. Thankfully for the German market trader, he can now recover this under his UK VAT registration.

The supply of the sausages to the market trader was made in Germany and the 7% German input tax should be recovered on the German VAT return while the supply of the mulled wine was made in the UK so the 20% UK input VAT should be recovered on the UK VAT return.

I only hope that all businesses that are not established in the UK but intend to sell goods or services in the UK after the 1st December 2012 are as proactive as this fictitious Munich market trader in considering the ramifications of the change in the UK VAT legislation.  If they aren’t they could be in for a nasty surprise from HMRC.  They could face assessments for unpaid UK output tax and suffer penalties for making the errors.

Food for thought for non-UK established businesses.

To understand all of the VAT implications of trading with other countries from a UK perspective you should attend The Essential Guide to UK VAT and International Trade.

Stephen Smith
Managing Director
UK Training (Worldwide) Limited