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Finance Act 2012

Section 203: Non-Established Taxable Persons


1.Section 203 and Schedule 27 amend the Value Added Tax Act 1994 (‘VATA’) from 1 December 2012, to insert a new Schedule 1A. New Schedule 1A changes the rules for determining when a business which makes taxable supplies in the UK but has no establishment here has to register for VAT. Non-UK established businesses will no longer be able to benefit from the UK VAT Registration threshold. The section also makes consequential changes to other parts of VATA and the Finance Act 2008.

Details of the Schedule

Details of the new Schedule 1A to VATA

2.New Schedule 1A applies to any person who makes taxable supplies in the UK but has no establishment here and requires that person to register and account for VAT on those supplies irrespective of their value.

3.New paragraphs 1 and 2 provide that the liability to register arises when a person reasonably anticipates making taxable supplies within the next 30 days, does in fact make such supplies or a business is transferred to that person as a going concern.

4.New paragraphs 5 and 6 provide that the person must notify liability to register within 30 days of the liability arising and the Commissioners must register that person with effect from the date when the liability arises.

5.New Schedule 1A also specifies when a person will cease to be liable to be registered under the new schedule (new paragraph 4) and makes provision for various matters that may arise in connection with registration such as wrongful registration under another Schedule (new paragraph 3), cancellation of registration (both compulsory and by election) and the effective date of such cancellation, (new paragraphs 7 to 12).  These provisions also specify the timescales for the notification and execution of various matters relating to cancellation of registration.

6.New Schedule 1A makes particular provision for the possibility that a person may be liable to be registered under the new Schedule and also entitled to be registered under Schedule 3B to VATA (special accounting scheme for the supply of electronic services in member States) (new paragraph 12).

7.New Paragraph 13 provides that a person liable to registration under the new Schedule may, on request and subject to HMRC’s approval, be exempted from registration if that person intends to or makes only zero-rated supplies (and so would, if registered, be entitled to a VAT refund but not liable to pay VAT).

Other amendments of VATA 1994

8.Paragraphs 2 to 17 of this Schedule make amendments that are consequential on the inclusion of the new Schedule 1A.

9.Paragraphs 3 to 17 ensure that VATA applies to Schedule 1A as it applies to Schedule 1 for the following contexts:

  • place of supply of goods rules (paragraph 3);

  • schemes for farmers (paragraph 4),

  • accounting for gold (paragraph 5);

  • reverse charge provisions for missing trader intra-community (MTIC) trading activities (paragraph 6);

  • regulatory breaches (paragraph 7);

  • powers of assessment and related matters (paragraphs 8 to 10); and

  • interaction with other registration schedules (paragraphs 14 to 17).

10.Paragraphs 11 to 13 ensure that the relevant parts of Schedule 1 apply only to persons established in the UK.

11.Paragraph 11(4) provides that the value of the taxable supplies of a person established in the UK for the purposes of determining that person’s liability to register under Schedule 1 shall include supplies made prior to that person becoming established.

12.Paragraph 18 provides that Schedule 41 to Finance Act 2008 applies to New Schedule 1A as it applies to Schedule 1 for the context of obligations to notify a liability to register and for material changes in the nature of supplies made by exempt persons.

Background Note

13.These amendments to VATA bring UK law into line with the judgement of the Court of Justice of the European Union in Schmelz C-97/09. The judgement confirmed a business without an establishment in a member State is prohibited from benefiting from that State’s VAT registration threshold.

14.Member States are permitted to apply VAT registration thresholds by the provisions of Chapter 1 of Title XII of Council Directive 2006/112/EU, the Principle VAT Directive (‘PVD’). The provisions enable member States to relieve small businesses from the burden of VAT registration.

Article 283 (1)(c) of the PVD prohibits a  threshold being applied to ‘a taxable person who is not established in the Member State in which the VAT is due’.

15.There is an establishment in the UK if:

  • The place where essential management decisions are made and the business’s central administration is carried out is the UK and/or

  • The business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK.

16.The Court in Schmelz confirmed that although the restriction of the application of a threshold to domestically established businesses was discriminatory (in that it interfered with the freedom to provide services under article 49 of the EC treaty) it was justified by the need for effective fiscal supervision of the threshold and proportionate to that need.  It was therefore a lawful restriction on the application of the threshold.

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