World of Tax #3 - UK VAT Registration for Global Businesses

Join Grigory Shchichko and Leo Tucker for Part 2 of our dive into UK taxes. Last episode, we talked about the basics of calculating VAT - this episode, we explore how to register with HMRC to make sure you are able to remit those values accurately and with a proper audit trail.

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Leo Tucker: 00:15

Hi, and welcome to World of Tax. I'm your host, Leo Tucker. And today, we're gonna continue from our previous discussion and talk about VAT registration for businesses selling into the UK. Grigory, welcome back.

Grigory Shchichko: 00:28

Nice to see you again, Leo.

Leo Tucker: 00:30

Okay. So there's that obvious threshold for cart value that we're calculating the you know, whether or not you charge that tax or not. So there's that threshold. Let's also talk a little bit about registration threshold.

Grigory Shchichko: 00:43

It's a great question, because a lot of people who are interested in this topic, they, start googling. Right? They start googling and then enter something like VAT registration threshold in the UK. And the first, thing that we they will get is the threshold of £85,000. It's actually their registration threshold for UK businesses for VAT.

Grigory Shchichko: 01:05

Right? And you should distinguish between businesses based in the UK and, foreign businesses, or as the HMRC, call them, non established taxable persons. Right? So this threshold of £85,000 VAT registration threshold, applies only to the UK based businesses. So then you are a foreign merchant.

Grigory Shchichko: 01:33

You have to, calculate and collect, VAT, from the first from the first sale.

Leo Tucker: 01:39

Alright. So if I understand this correctly, if you are a UK based merchant and you're selling in the UK entirely, then that £85,000 threshold applies. However, if you're outside of the UK selling into the UK, the first thing you sell, you gotta collect tax on it regardless of how much it is, assuming it's under that, a £135 .

Grigory Shchichko: 02:03

That's 100 and correct. Yeah.

Leo Tucker: 02:05

Okay. That makes a lot of sense. It's a lot it's always a good idea to consult a tax expert, not necessarily get your information from Google. It can be tricky. Let's talk about registration thresholds.

Leo Tucker: 02:16

Let's use our existing example. We've got a European merchant. They're based in Germany, and they're going to sell into the UK. So what do they need to do to become fully compliant?

Grigory Shchichko: 02:28

As we've just discussed, this German merchant needs to obtain a VAT registration in the UK. Right? The registration process is not very in full transparency, it's not too complex. However, it might take time. So, I mean, there is no any, guarantee.

Grigory Shchichko: 02:51

And from my experience, obtaining, multiple VAT registrations in the UK, for foreign companies, it might range from 1 month to 6 months. So you need to take this into account if you want to start doing business. Right?

Leo Tucker: 03:09

So filing for that sort of thing, is that usually done quarterly, yearly? The reason why I'm asking is if it takes 6 months to get registered for a VAT number in the UK and your business is selling tomorrow, then there could potentially be 6 months between your first sale and when you even have a registration, you know, to file against. So what's the strategy there?

Grigory Shchichko: 03:33

There is a very complicated strategy. I'm not gonna elaborate on that. Then you start selling, and you are waiting for your registration, which, as you rightly mentioned, might, take up to 6 months. But in this case, once you obtain this registration, you will need to reissue on the all the invoices that you issued previously because you cannot put any VAT on the invoice unless you're registered. So it's it's gonna be it's gonna be like a nightmare, to be honest.

Grigory Shchichko: 04:01

If I were the merchant and I wanted to do this to handle this in house, which is one of the options, then I would recommend, obtaining this registration before actually starting doing business.

Leo Tucker: 04:16

Oh, so getting the registration ahead of time?

Grigory Shchichko: 04:18

Yes. And given that HMRC suggests that if you expect to have any, sales to the consumers in the UK in the next 30 days, you should start this registration process in the next 30 days. So not about they are not even talking about the, the sales that might have already been done. But it's not just about obtaining the registration. So you rightly mentioned that after you're registered for VAT in the UK, it immediately triggers reporting requirements.

Grigory Shchichko: 04:51

The bad news, guys, is that in the UK, there is no any simplified registration for foreign, ecommerce providers. So compared to, say, Singapore or Australia or New Zealand, all those countries also require foreign merchants to calculate and collect, taxes, on low value goods. But they, at the same time, offer simplified registration regime with simplified reporting. For the UK, it's just the standard UK VAT return that you need to fill out. I also talking about reporting requirements.

Grigory Shchichko: 05:29

That is one thing that you need to be aware of. It's very important. So a couple of years back, the UK finished the transition to this special digital tax regime that, is called, MTD, make making tax digital. What it means is that you can no longer submit VAT returns on paper. Previously, there was an option.

Grigory Shchichko: 05:54

So all VAT returns must be submitted electronically and more of that. You need to prepare them using special software, software authorized by HMRC. It's a special software that creates, so called audit trail. So you need to pull all those numbers into the software, use the software to prepare this VAT return, and then this the information from this VAT return is transferred in the special format. I think from memory, it's XML format to HMRC.

Grigory Shchichko: 06:29

So these also add some complexity to this compliance. And speaking about reporting frequency, usually, it's quarterly. But like we discussed, doing all of these taxes in house is one of the options. Right? In this episode, we discussed just the UK alone.

Grigory Shchichko: 06:48

Right? But, as we mentioned earlier, 40 different countries, across the world require, foreign ecommerce retailers selling physical goods to calculate and collect taxes at the point of sale. So it shows not just the UK. Right?

Leo Tucker: 07:03

So for me, Emergent, I've got essentially 40 other countries that I need to have a whole page of the notes that you just gave me about to be able to do that in house.

Grigory Shchichko: 07:12

So the time to market, in my, opinion is paramount. I firmly believe that using a reputable merchant of record for tax calculation and support this, shipping of low value goods across the world, including the UK, is, an option that that ecommerce, merchants should not ignore.

Leo Tucker: 07:32

Absolutely. That's great advice. Gregory, thanks for being on the show today. It was nice to talk about UK tax requirements today. And for the world of tax, I'm Leo Tucker.

Leo Tucker: 07:42

Thanks a bunch. If you like this content, go ahead and like and subscribe. And if you wanna see more of what we got coming, hit that little bell at the bottom. Thanks. Brought to you by the reach network.

Leo Tucker: 07:58

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