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VAT registration required if a partner is non EU?

Small business partly run by non EU- must it be VAT registered if selling imports from CHINA

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An Australian citizen has set up a sole trader business in Australia to sell clothes to both world markets. The products are produced in China and imported to fulfilment centres in Australia and the UK. The Australian has a partner (personal) in the UK (UK Citizen) who is not currently a part of the business but is considering becoming so.

On import to the UK, duty and VAT are payable at 12% and 20%. It is expected the yearly turnover, initially, will be less than the £85,000 VAT threshold.

  1. It is my understanding that a non EU small business must be registered for and charge VAT in the UK regardless of turnover amount. Is this correct?
  2. If the Australian and UK citizen form a partnership in the UK does it have to be registered for and charge UK VAT. (Does the division of profits within this partnership have an impact?)
  3. if they set up a separate legal entity (limited company) would the requirement for VAT registration differ?

 

Replies (7)

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By paul.benny
06th Aug 2020 08:07

Nationality and/or residence of business owners do not affect the obligation to register for VAT, nor does the legal form of the business (company vs partnership)

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Replying to paul.benny:
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By elyob
06th Aug 2020 13:27

Paul, thank you for your reply.

Can I draw you attention to the following:

“ Businesses outside the UK
There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK”
(https://www.gov.uk/vat-registration/when-to-register)

“Overseas seller – definition
You’re an overseas seller if you both:

-sell goods stored in the UK to UK consumers through an online marketplace
-do not have a business establishment in the UK”
(No.13 from... https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-r...)

“You must register for VAT in the UK if you’re:

-a UK seller selling goods as a business activity in the UK, and your business’s VAT taxable turnover is more than £85,000 a year.
-an overseas seller selling goods as a business activity where those goods are located in the UK at the point of sale, or where the goods are sold to a UK customer and then imported into the UK by the seller (there is no threshold).”
(https://www.gov.uk/guidance/vat-overseas-businesses-using-an-online-mark...)

On the basis of the above It would seem that the Australian alone would may have to register for VAT.

If the Australian joins with the UK citizen to form a partnership or company, would the business still be considered a UK seller or an overseas seller as this distinction seems to dictate whether or not VAT registration is required?

Any thoughts you have would be most appreciated.

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Replying to elyob:
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By paul.benny
06th Aug 2020 13:57

A UK entity (company or partnership) is a UK seller and therefore does not need to register for UK VAT until turnover hits the threshold. They will however have to file tax returns, which an overseas seller without a permanent establishment in the UK does not.

Given that you're suffering input tax on your imports and other costs, and that you presumably intend to grow this business, you might as well register anyway.

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Replying to paul.benny:
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By elyob
06th Aug 2020 22:48

Firstly, thank you very much for your time on this.

The reason for the hesitancy on registering at the outset is that the output VAT up to £85,000 would be £14,000 whereas the input VAT is expected to be in the region of £4,000.

From a tax perspective in this situation would you favour a partnership over a company?

Would the partnership be required to make purchases from a joint UK account and the proceeds of sales be remitted to this account even though one of the partners will continue to reside in Australia?

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Replying to elyob:
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By paul.benny
07th Aug 2020 08:06

On partnership vs company: this is going to depend on the other income of the partners and the projected scale of the venture.

The question of bank accounts is largely a practical one. It's going to be awkward doing business in the UK without a UK GBP account. Be aware that the bank's KYC procedures are likely to take longer for a non-UK citizen.

You're right to think about these things before starting your business but I think this is the point where you need to start investing in paid-for advice.

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Replying to paul.benny:
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By elyob
07th Aug 2020 10:57

Paul, thank you once again for your help on this.

It is sometimes difficult to find an advisor who is familiar which this type of situation. Have you any recommendation on a paid fee basis.

If it is an area you are familiar with feel free to say and send me a contact if you wish.

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Replying to elyob:
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By paul.benny
07th Aug 2020 12:31

I can't assist personally. PM sent.

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