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Types of UK VAT registration

01-11-2017 Simon

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Types of VAT registration in the UK

This note describes the two types of UK VAT registration:

Compulsory registration – when you must register for UK VAT
Voluntary registration – when you may register for UK VAT if you wish

Businesses based in the UK

By based in the UK I mean that you have a UK Business Establishment. The phrase Business Establishment has not been defined by UK law, but it has been considered by the European Court of Justice. In essence, your Business Establishment is the place where the main activities of your business’ central administration are carried out. It is the place where essential day to day business decisions are taken. This will usually be your head office, or the place where you run your business. By definition, you can only have one Business Establishment. A registered office alone is not sufficient to create a business establishment. A person carrying on a business through a branch or agency in the United Kingdom is treated by HMRC as having a business establishment in the United Kingdom.

Compulsory VAT registration for businesses based in the UK

The rules regarding compulsory registration are complex and depend upon the exact situation. However, in summary if your business is based in the UK then you must register for UK VAT if:

you make UK taxable supplies of more than the £85,000 threshold in a 12-month period; or
you expect to go over this threshold in a single 30-day period; or
you buy goods for more than the threshold from EU VAT-registered suppliers.

Voluntary registration for businesses based in the UK

You can usually register voluntarily for UK VAT if your UK taxable supplies are less than the £85,000 threshold. You can also usually voluntarily register for VAT if you make a supply outside of the UK, which would be a taxable supply if it were made in the UK.

Businesses NOT based in the UK

If your business is not based in the UK then there are different rules.

Compulsory VAT registration for businesses not based in the UK

If your business is not based in the UK then you must register for UK VAT if:

you sell goods to individuals and your turnover is more than the £85,000 threshold; or
you hold goods, other than call off stock, for sale in the UK.

Call off stock

If you hold what is known as Call off Stock in the UK you don’t usually have to register for VAT in the UK. Call off Stock are goods that you own, but that a customer has control of. For example, let’s say your’ Italian company sells shoes to a large UK customer. To make things efficient you decide to store your shoes in a warehouse in the UK and allow your UK customer to pick the shoes up when he needs them. This would be an example of Call off Stock. Put more technically, if you have title to the goods but your’ customer has control of the storage and can take stock at will, then that stock is categorised as Call off Stock.

For European VAT purposes, the sale of Call of Stock is treated as a cross European border (intra-community) VAT supply.

Going back to my example of your Italian company that sells shoes to a UK company, you would treat the sale as if it were a sale of goods from Italy to the UK. When the stocks are sold, your Italian company would zero rate the sale and the UK company would account for the VAT under the reverse charge procedure. Reporting under Intrastat and EC Sales Listing would normally still be required.

Consignment Stock

The treatment of Consignment Stock is different to that of Call off Stock. Consignment Stock is where the goods are sent by the seller, say your Italian company, to your warehouse in the UK for onward distribution to more than one potential customer. In this case if the warehouse is under your (the seller’s control) the movement of goods to the warehouse in UK is treated as a self-supply. This would apply, for example, if you had a rented storage facility in UK. So, for Consignment Stock, you will almost certainly have to register for VAT in the UK. The movement is treated as a sale to yourself and a purchase from yourself. Intrastat and ESL declarations would be required. When the goods are then sold to the customer, UK VAT is charged and recorded using your UK VAT registration details.

Voluntary registration for businesses based outside the UK

You can usually register voluntarily for UK VAT if your UK taxable supplies are below the £85,000 threshold. However, unlike for businesses based in the UK, you can’t voluntarily register for VAT if you make a supply outside of the UK, even if the supply would be taxable if it were made in the UK.

Place of supply for services

In the above text, I make reference to UK taxable supplies. This is a complex area in its self.

The general place of supply rule for goods

The general rule for goods is that the place of supply is usually the physical location of the goods when they are sold. So, if your goods are in the UK when sold, you are making a UK supply. If your goods are in Italy, then you are making an Italian supply. This means that for goods you don’t normally need to consider other factors, such as where the parties belong, invoice routes, payment arrangements, etc.

The general place of supply rule for services

The general rule for a supply of services is that if the supply is made to a:

business customer (a B2B sale), then the place of supply is where the customer belongs; and
non-business customer (a B2C sale), the place of supply is where the supplier belongs.

Exceptions to the general rule

There are lots of exceptions to the standard rule. Where there is an exception, the place of supply does not usually depend on whether it’s a B2B or B2C sale. Instead, the place of supply is where the service is carried out. I have just listed a few of these below,

Services relating to land: The place of supply of services connected with the land is almost always where the land is located.
Installed or assembled goods: The rule is that the place of supply is where the goods are installed or assembled. However, there is an EU simplification procedure that allows a European business to avoid registering for VAT in the UK.
Events and “where performed” services: These are services that relate to an event or physical performance. In this case, there are different rules depending on whether it is a B2B or B2C sale.
Catering services: The place of supply of restaurant and other catering services is where the services are physically carried out.
Intermediaries: An intermediary, is someone who either arranges or facilitates a supply. Again, there are different rules depending on whether it’s a B2B or B2C sale.
means of transport: The place of supply for short-term hire of transport is the place where the vehicle is picked up. This applies for supplies to both B2B and B2C. The place of supply for long-term hire of transport is usually where the customer belongs.
Opt to tax: If you rent out a property then you have the option of VAT registering or not. This option is referred to as opting to tax.
Use and enjoyment rules: The best way to illustrate the use and enjoyment rules is for me to give you an example. Imagine that a Canadian company hires out a television to a UK person who uses the radio in his UK home. Under the general rule, this would be a B2C supply and the place of supply would be where the business belongs, Canada, not the UK. However, the use and enjoyment rules mean that this isn’t the case. Instead, the place of supply is deemed to be the UK.
B2C supplies of digital services: Unlike the general rule, if you supply digital services B2C then the place of supply will be the place where your customer belongs. If your customer belongs in the UK then UK VAT will be due. However, if your customer belongs in another EU country then VAT will be due in that other country. If your customer belongs in a non-EU country, then you’ll need to check and follow that country’s rules.

Exceptions to the standard rule

Types of VAT registration in the UK This note describes […]