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UK HMRC targets virtual e-commerce companies’ VAT

Marketplaces alerted on VAT obligations of Non-established taxable persons (NETP)

The UK’s HMRC is working with marketplaces to identify foreign e-commerce traders which have established virtual UK companies in an attempt to avoid VAT registration obligations. It is estimated over 10,000 businesses are being approached that should be VAT registered and are not entitled to the VAT registration threshold.

The 2021 UK e-commerce VAT reforms require foreign e-commerce low-value item importers to VAT register from their first sale to UK consumers. This has led to some foreign sellers to form UK virtual companies via local accounting firms and virtual offices.

Under the UK’s Non-Established Taxable Persons (NETP) rules, foreign businesses which have incorporated a UK subsidiary must meet certain criteria to take advantage of the VAT registration threshold of £85,000. This criterion includes:

  • the place where essential management decisions are made and the business’s central administration is carried out is in the UK
  • the business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK.

The UK domestic registration threshold does not apply to NETPs.

Virtual offices not suitable for VAT establishment

HMRC can accept a company which is incorporated in the UK as being established in the UK, as long as the company can receive business type supplies at its registered office (what HMRC call a principal place of business). If it is a virtual office or Accountants office then it is unlikely to meet the HMRC view of UK establishment as a virtual office cannot receive supplies on behalf of the business.


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