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Finance Act 2012

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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