05/03/24

HMRC | Overseas Traders (NETPs)

HMRC | Overseas Traders (NETPs)
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Non-established taxable persons (‘NETPs’) refer to individuals who are not regular residents in the UK, do not possess a physical establishment within the UK, and, if a company, are not registered or incorporated within the UK.

Historically, the UK extended the domestic VAT threshold to NETPs who make taxable supplies within the country. However, this ceased to be the case following a decision in the European Court of Justice which decreed that only businesses established in a Member State can benefit from its domestic VAT registration threshold.

As a result, the current stance is that NETPs can no longer utilise the UK domestic threshold, and they must register for VAT in the UK starting from the earliest of:

  • the date that they make or
  • expect to make taxable supplies of any value in the UK.

Since NETPs cannot benefit from the UK domestic threshold, currently set at £85,000, their VAT obligations may exceed those of a UK-based business. This could potentially impact the selling price of their goods.

Clearly, this situation creates the possibility for NETPs to seek to claim an established physical presence in the UK, in order to take advantage of this threshold, even when they do not have one.

HMRC has had longstanding suspicions regarding the under declaration of revenue owed to it by Online Marketplaces (‘OMPs’). Additionally, it acknowledges the potential for NETPs to illicitly explore trading channels aimed at retaining threshold benefits and remains vigilant regarding fraudulent activities, including false claims of established presence within the UK.

Hamraj Kang outlines the compliance requirements to show that a trader is entitled to be regarded as an established business in the UK and the steps taken by HMRC to counter evasion and fraud by NETPs.

NETPs | Establishing a UK Presence

If a business does not satisfy the following requirements, it is not a UK establishment and more likely to be regarded as an NETP:

  • it is incorporated in the UK. HMRC anticipates that a company incorporated in the UK may be established in the UK as long as, inter alia, business supplies could be received at its registered office.

A company, whilst incorporated in the UK, which sells all of its goods on an online marketplace with only a fulfilment in the UK, is highly unlikely to be accepted as established in the UK.

  • it has headquarters based in the UK from which business management and administration is conducted.
  • the business has a base housing the human and technical resources essential for its operation.

HMRC Steps to Counter Fraud

Under new rules introduced in January 2021, OMPs such as Amazon, eBay and Etsy are now required to collect VAT on sales carried out by NETPs using such platforms within the UK and remit it to HMRC.

HMRC often communicates with OMPs highlighting those identified as NETPs in order to enforce compliance with the obligation to retain and account for the requisite VAT liability.

HMRC sends out ‘one-to-many’ letters, otherwise known as Nudge Letters (See our previous article on HMRC Nudge Letters) to those suspected or identified as NETPs advising of the legal obligation to register for VAT.

Additionally, suspected NETPs are invited to declare how they regard their VAT status. An NETP which fails to register for VAT at the right time, or at all, will be subject to the imposition of a penalty which may be linked to the defaulter’s behaviour. Deliberate or concealed non-compliance attracts a higher penalty.

How Can We Assist?

If you or your business are called upon by HMRC to prove that you have an established business presence in the UK for VAT purposes, it is essential that you seek experienced professional tax advice and guidance.

As with most UK tax regulations, those affecting NETPs are extremely detailed and complex and require a full understanding when dealing with HMRC.

The Team at KANGS offers enormous experience gained from supporting clients involved in HMRC Investigations, Prosecutions and Tax Appeals.

If you need help, please do not hesitate to contact our Team, who will be delighted to hear from you. Please call or email us using the details below:

Email: info@kangssolicitors.co.uk

Telephone: 0333 370 4333

Hamraj Kang

Hamraj Kang
Senior Partner

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Tim Thompson

Tim Thompson
Partner

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Nazaqat Maqsoom

Naz Maqsoom
Associate

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