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1stopVAT Case Study: VAT Registration Difficulties in the UK for Foreign Entities

EU-based companies claim that the VAT registration process in the UK has become more complex and lengthier, especially for electronically supplied service providers. Our case study shows that VAT registrations can take up to six months and result in confusion.

The UK‘s HMRC claims that processing VAT registration takes around 40 working days. However, after Britain left the EU, many non-UK businesses have faced a more dire reality, with VAT registration cases extending to up to half a year and resulting in numerous back-and-forth conversations with the regulator.

1stopVAT has been involved with a case that took nearly six months to resolve. Our Process Manager Rūta Švobienė  is ready to share the lessons with others going through the VAT registration in the UK as non-residents.

“We have shared our story about the difficulties we overcame to get our client, an electronically supplied service (ESS) provider, registered for VAT in the UK. After reading the comments from other tax consultants, we found out that our case was not the only one. It is now apparent that many non-residents face similar problems and find the VAT registration procedure extremely complicated. With the growing number of electronically supplied services providers — software companies, online advertising facilitators, web hosting, online magazines, and similar businesses — the impact of the flawed VAT registration process can be significant,” says Rūta Švobienė.

The ESS provider’s VAT registration took over five months.

In the unfortunate case of our client, the communication with HMRC took over five months, despite the company providing all required information, including the SIC code indicating that the business is supplying ESS. The submitted VAT application was initially appointed to a distance sales team at HMRC that only deals with non-resident companies registering for distance sales.

The company’s application was rejected after five months of communication with HMRC. The notice from HMRC claimed that supplies of digital services directly to the consumer do not fall under the scope of UK VAT. The argument provided by HMRC stated that the place of supply for these services is the “Country of company‘s incorporation,” and VAT should be accounted for in that country.

HMRC’s argumentation conflicted with the official regulations. In addition, all existing rules claim that non-resident ESS providers have a GBP 0 VAT registration threshold.

“Naturally, after receiving the rejection letter for the VAT registration, we reached out to HMRC. Unfortunately, the assigned consultant could not advise us, stating that they were not informed about handling ESS cases, but further investigation was promised. We were lucky to find out that the promise was kept, and our client received a VAT registration approval a week after our last call with the consultant,” says Rūta Švobienė.

After taking around a month for the VAT number to reach its owner by post, our client became officially registered for VAT in the UK — completing a six-month journey to reach its goal.

Recommendations for other non-UK resident companies registering for VAT

1stopVAT example proves that the current VAT registration process depends highly on the competence of the HMRC’s consultants — which can sometimes pose a threat to non-resident companies.

“We hope that the status quo will change soon enough, but we encourage others to keep a close eye on how HMRC handles the process. We’ve learned our lesson — and hope that others can use our experience,” says Rūta Švobienė.

The most efficient way to finalise the VAT registration for EU-based companies that provide electronically supplied services is to reach HMRC after the VAT application is submitted. It can be beneficial to establish a contact and give a complete description of the economic activity, enclosing additional data to prove sales in the UK market, such as:

  • Evidence of any setup costs;
  • Website hosting costs;
  • Accounting costs;
  • Examples of sales made to customers in the UK.

By proactively providing this information, companies might prevent application rejections and prolonged communication with HMRC.

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