The UK comes under the EU VAT rules, and is part of the EU single market economy. VAT directives are issued by the EU which lay out the principles of the VAT regime to be adopted by the member states, including the UK. These directives take precedence over the local legislation.
UK VAT law
The UK introduced VAT in 1973. It is administered by HM Revenue and Customs (HMRC).
UK VAT registration
Foreign companies may register for VAT in the UK without the need to form a local company; this is known as non-resident VAT trading. Foreign companies must register for UK VAT immediately if they are providing taxable supplies; there is no longer any non-resident VAT registration threshold. The exception for non-resident businesses is distance-selling of goods over the internet to private consumers from another EU state, in which case the registration threshold is £70,000 per annum. EU and non-EU companies are permitted to register for VAT in the UK without the need to appoint a local fiscal representative.
There are strict rules on the situations where a registration is permitted. Common scenarios which require a UK VAT registration include:
- Importing goods into the EU via the UK,
- Buying and selling goods within the UK,
- Holding goods in a warehouse in the UK as stock,
- Selling goods from the UK to other EU countries,
- Acquiring goods from other EU countries into the UK,
- Distance-selling to private individuals in the UK from another EU country – e.g.- internet retailing.
Registering for UK VAT generally takes around four to six weeks, although this can vary.
UK VAT compliance
There are detailed rules controlling the recording and processing of UK transactions. These include guidelines on:
- UK invoice requirements,
- Foreign currency invoicing and reporting,
- Correcting errors in previous returns.
UK VAT rates
The standard VAT rate in the UK is 20%. There are reduced rates of 5% for domestic heating fuel, children’s car seats and 0% for food, books, children’s clothing and other goods and services. There are many variations to the rates above, including exempt supplies.
UK VAT returns
Companies with a UK VAT number must submit periodic returns detailing all taxable supplies (sales) and inputs (costs). Returns are submitted either monthly or quarterly in the UK; the rules and their application are very varied. VAT returns in the UK are due one calendar month and seven days after the end of your VAT period.
Returns can be filed electronically through the HMRC Online Services system. This is mandatory.
UK Intrastat and EC sales lists
In addition to VAT returns in the UK, companies may be required to submit additional statistical information. The UK Intrastat system (or supplementary statistical declaration) requires a monthly return listing all movement of goods between the UK and other EU- member states. There are annual thresholds for these filings. The EC sales list return contains information on the VAT numbers of EU customers and the values of sales in the relevant period, and must be filed quarterly or monthly, depending on turnover.
UK VAT refunds
If a foreign company is not making taxable supplies in the UK, but is incurring UK VAT on local goods or services, then the VAT may be recovered through a VAT.