Making Tax Digital – Non Established Taxable Persons and VAT online

4 Eyes Ltd represents numerous international clients, acting as UK VAT agent, handling UK VAT registration and submitting returns on their behalf.

With effect from 1 April 2019, all UK VAT registered businesses trading above the VAT registration threshold have had to move to electronic record keeping and adopt software to submit future VAT returns.

With effect from 1 October 2019, HMRC are extending this requirement to non-UK companies also.

4 Eyes Ltd will use bridging software to enable its clients to submit VAT returns after the implementation deadline in each instance.

There has previously been confusion as to whether the extension to 1 October 2019 is automatic or not for non-UK registered businesses using a UK VAT agent – HMRC had advised that in this instance the 1 April date would apply unless the business received an extension letter, but when we then tried to register all our clients for MTD, we were unable to do so because the system will not currently recognise non-UK companies. As a result of the failure of the online system at this time to recognise non-UK companies, all non-UK businesses affected by these changes will have to wait until the system is changed to allow for this. For now, HMRC have now confirmed that the extension must de facto apply and that non-UK businesses may continue to use the current manual input system to complete their VAT returns.

New rules have been introduced which apply to businesses making distance sales of goods to the UK following Brexit. These new rules apply to all packages worth GBP 135 or less (the current GBP 15 VAT and duty exemption will also cease to apply) where the seller is not currently VAT registered and makes UK supplies in any 12-month period of under the UK GBP 70,000 distance sales VAT registration requirement.

The new rules will apply immediately following Brexit and registrations should be put in place as soon as possible in anticipation of this.

If you are based outside the UK and sell parcels to UK buyers worth £135 or less, you must pay import VAT. Parcels include letters, packages, packets and any other article that could be sent by post, even if they are sent by different methods.

To pay import VAT you can either:

  • register with HM Revenue and Customs (HMRC) to report and pay the import VAT due yourself
  • pay a parcel operator that offers a service to pay import VAT to HMRC on your behalf

 

Who should register?

You can register to pay import VAT if you:

  • are based outside the UK - this includes the EU, outside of the EU and the Channel Islands
  • intend to sell goods worth £135 or less (not including shipping, insurance and incidental costs) to UK buyers after Brexit
  • choose to pay the import VAT yourself and not to a parcel operator

You can register with HMRC before you need to start paying import VAT on parcels.

HMRC may refuse to register you if they have evidence that you have not met registration rules.

 

Do not register if any of the following apply:

  • all goods you sell to UK buyers are worth more than £135 (not including shipping, insurance and incidental costs) – You will need a UK VAT registration.
  • if you have to pay Excise Duty on all the goods you sell (for example, alcohol and tobacco) – You will need a UK VAT registration.
  • your business is based in the UK or is considered to have a ‘UK footprint’ - for example, if you employ or sub-contract people in the UK to sell all your goods worth £135 or less to UK buyers – You will need a UK VAT registration.
  • you are sending a gift
  • you pay a parcel operator that offers a service to pay import VAT to HMRC on your behalf
  • the goods are sent to the UK under customs special procedures (for example, temporary admission and transit procedures)

You must keep records as evidence of any agreement you have with a parcel operator to pay import VAT on your behalf for 6 years from the date the parcels are posted.

If you are based in the Channel Islands and choose to pay import VAT to your parcel operator, you can either:

pay the import VAT to your national parcel operator - Jersey Post and Guernsey Post have agreements with HMRC to pay the import VAT on your behalf

pay the import VAT to a parcel operator with an agreement in place that their carrier will pay HMRC

 

 

Failure to register

If you do not register with HMRC or pay import VAT to a parcel operator, you may find:

  • your parcels are delayed or stopped from entering the UK
  • the UK buyer may have to pay additional tax and fees
  • you have to pay a penalty of £1,000 per importation

 

You must still register if you sell zero-rated goods. Zero rated goods are still VAT-taxable but the rate of VAT charged is 0%.

 

Way forward

 

4 Eyes Ltd can undertake the registration process on your behalf and provide assistance in completing quarterly returns. If your turnover exceeds the VAT registration threshold, we can then VAT register you within the UK and act as your VAT agent.

Car parking overpayments

National Car Parks Ltd – CoA

The taxpayer operates pay and display car parks. A person parking their car in one of the taxpayer’s car parks is required to purchase and display a ticket. The customer is notified by the instructions on the front of the pay and display ticket machine that the machine does not give change - “No change given, overpayment accepted”. If the customer does not have the correct change and inserts coins to a value above the tariff displayed, the machine will not recognise any additional parking time. The hypothetical example used is a tariff of £1.40 for up to one hour and a customer with limited change who pays £1.50. The taxpayer submitted a claim based on the fact that it should only account for VAT on the £1.40. HMRC refused the claim and the taxpayer appealed. The earlier FTT dismissed the taxpayer’s appeal concluding that there was a link between the full payment and the service provided. The FTT added that the customer knew what they were paying for the service and had just made a bad bargain. The FTT noted the similar Kings Lynn FTT where overpayments in local council car parks were found to be outside the scope of VAT. However, the FTT effectively distinguished this on the basis Kings Lynn’s charges were fixed by Statutory Order. On appeal, the UT focused on Article 73 of the VAT Directive, which provides that the ‘the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party,’. In finding again for HMRC, the UT concluded that the contract is formed when the customer inserts the money into the machine and if a customer pays £1.50 that is the amount received by the supplier and that is the taxable amount for VAT purposes.

The CoA differed slightly on the contract point, concluding that the contract was entered into when the customer clicked the green button. The pressing of the green button would represent acceptance by the customer of an offer by NCP to provide an hour's parking in return for the coins that the customer had by then paid into the machine whether this was the exact £1.40, £1.50 or another combination of coins. The CoA determined that if a customer chooses to pay £1.50, that amount is the value given by the customer and received by the supplier in return for the right to park for up to an hour. On this basis the taxpayer’s appeal is dismissed.

Comment

Whilst some of the reasoning and comments has varied, the taxpayer has now lost at every stage of litigation. Whilst an appeal is likely, the Supreme Court may refuse permission to appeal meaning this is the end of this piece of litigation. The earlier UT stated that the earlier similar King’s Lynn FTT decision was wrong. This concerned overpayments in council run car parks. The CoA did not hear arguments on this point but indicated that it would have been unlikely to have ‘endorsed’ it.