HMRC challenges UK VAT status of online traders

HMRC will contact businesses believed to be non-established taxable persons (NETPs) for VAT purposes. The business will then have 30 days to challenge HMRC’s decision.

HMRC will send a one-to-many letter from late January 2024 to businesses that it believes are NETPs (non-established taxable persons) for UK VAT purposes.

The businesses targeted are likely to be those using either an agent or serviced office address as their place of registration.  

In the letter, HMRC asks the business to provide evidence that it is established in the UK for VAT purposes if it disagrees that it is a NETP (non-established taxable person).  

HMRC states that, to be established in the UK for VAT purposes, the business must meet at least one of the tests below. 

• It makes essential management decisions and carries out its main administration in the UK.
• It has a permanent physical presence in the UK, with human and technical resources to make or receive taxable supplies. 

UK incorporation does not automatically mean that a business is established in the UK. 

HMRC is primarily sending the letters to businesses that trade on online marketplaces.

Having NETP (non-established taxable person) status means that the marketplace will typically collect output VAT on the business’ supplies and pay it directly to HMRC.

NETPs (non-established taxable persons) that make supplies in the UK need to be registered for VAT, even if their turnover is below the £85,000 registration turnover threshold. 

If the business disagrees with HMRC, it needs to submit the relevant evidence within 30 days of the date of the letter.

As some of the decision-makers involved in the business may be based outside of the UK, any agents receiving these letters on behalf of their clients should consult with the client as soon as possible.

The letter also sets out the procedure required to request a review of HMRC’s decision, or to appeal to an independent tribunal.