From late January, HMRC are rolling out letters to online traders they suspect may not be paying the VAT amounts they should. ‘High-volume addresses’ in particular will be targeted as part of a crackdown on overseas sellers avoiding VAT payments.
Changes to legislation in January 2021 mean that online marketplaces are now liable for the output VAT created by sales from overseas traders. Some sellers, however, have circumnavigated this need to pay VAT by providing UK addresses when prompted for details of their premises by online platforms.
Overseas traders are classed as non-established taxable persons (or NETPs) if their businesses are not established in the UK for VAT reasons. NETP-owned businesses need to be registered for VAT even if their company’s turnover is below the £85,000 annual threshold that UK businesses enjoy. This makes a UK base of operations (or at least the suggestion of one) attractive for overseas traders.
Once registered as an NETP, online marketplaces start to collect VAT payments from each sale to send over to HMRC, but the governmental department has long suspected that it hasn’t been receiving the tax payments it should. The letter they plan to send out to businesses suggest that many NETPs haven’t declared themselves as such, and are benefitting from not paying VAT. By not registering as an NETP, businesses can fail to declare VAT without the online marketplace being liable.
This can cause problems for native UK businesses that find themselves at a trading disadvantage as a result of this. With business closures already rampant among small and large UK businesses alike, unbeatable overseas competition can deliver the final nail in the coffin for Britain’s struggling online traders.
UK addresses
It’s thought that the addresses of agents or professionally arranged addresses have given overseas sellers an easy way to work their way around the system. Some of these are known as ‘high-volume addresses’ for the simple fact that the same address can be used for up to 10,000 businesses in some cases.
Unfortunately for such companies though, UK incorporation, or even owning premises in Britain, doesn’t necessarily qualify a business for being ‘established in the UK’. These UK addresses have, however, allowed NETPs to fly under the radar of HMRC thus far. To combat this, HMRC’s new letter explains that any business using such an address is automatically assumed to be an NETP now. Recipients then have 30 days to provide evidence to the contrary.
Rick Smith, Managing Director of Forbes Burton suggests that this can only be beneficial for UK businesses, “HMRC are often seen as the bogeyman for struggling companies, but by taking action against online overseas sellers flouting the rules, they’re actually creating a more level playing field for UK traders here”.
What to do if you’ve received a letter in error
If you’ve received one of these letters, then the first thing you should do is get in touch with HMRC. Most addresses these letters arrive at will not be manned by anybody from the businesses they’re said to support, so your prompt reply will put you in good stead immediately.
HMRC will be looking for two items of evidence to prove that your business either makes managerial decisions or carries out its main administrative work in the UK, or has a permanent premises here, with the resources to make or receive supplies that are taxable.
What will HMRC accept as evidence?
Council tax bills, utility bills, proof of rental payments, staff records, and any directors’ National Insurance numbers.
Has your online trading been hurt by unregistered NETPs?
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