UK VAT Representatives - necessary background; trade barriers
I have set out below HMRC's requirements as to the appointment of a tax, VAT, Representative.
Two things leap off the page for me - they're both barriers to trade. And I'd like to see whether any Insolvency Practitioners see any issues with this.
The first is that a VAT representative should, in HMRC's eyes, hold sufficient assets, or a financial guarantee, that means that they can meet the liability of their Non-Established clients. Now the annual cost of a bank guarantee, which should normally be upon a UK bank, That is going to cost at least ￡5,000 per annum for a taxpayer paying around ￡250,000 a quarter. But it could be considerably more because the NETP is foreign and has no assets that a bank can get at in the UK and, effectively, form a barrier to trade.
The second is that, using powers to stop tax evasion by online sellers, HMRC would seek security from a non-established business. Without providing that security - again a guarantee on a bank to all intents and purposes - it is illegal for the business to continue to trade in the UK. That leaves me to question whether extending the security requirement beyond an online trader seeks to go beyond the intention of Parliament (Pepper v Hart). Now that would make some "interesting" litigation - and naturally a business would like to avoid getting in that position.
Looking beyond the parochial, do these trade barriers, and in particular the power to require security, comply with world trade laws? Strictly there is no need for either under the terms of the CTA given that it has a mutual assistance provisions between the UK and the EU. I guess that should provide comfort for banks providing a guarantee, but there is nothing here to say which action the UK Government would have to take first. My suspicion is that they would go for the low hanging fruit and not follow through the mutual assistance provisions.
But I would also look at the World Trade Organisation rules, and in particular the "National Treatment Obligation". Now given that there are anti-evasion provisions in place for online sellers - in particular the Online Marketplace provisions, I would be somewhat surprised if HMRC also sought to use the requirement for security. Indeed, if that were to be the case, then I think that would be a somewhat less interesting case.
However, what about the National Treatment Obligation. I understand that to mean a foreign business should not be treated differently to a local, in this case UK, business. So how would the imposition of security affect, say, an engineering business? I'd say given that the intention of Parliament relates to online traders, and is intended to protect against a specific mischief, the UK could well run into trouble if challenged based on the WTO - and presumably in a case that would have to be heard in the WTO court.
But of course, there is without all this a big point for all overseas business to look at with UK VAT registrations - has the VAT Representative fulfilled the requirements of the UK Government and, if not, what action to take.
One alternative is to look at the UK VAT agent route, where there is no requirement for joint and several liability. Bu, of course, if the UK Government decides that your business constitutes a risk, you may in any event be required to appoint ma VAT representative with added costs of compliance or of litigation.
What follows are the words of HMRC from their guidance.
'The Department has the power under the VAT Act 1994, section 48(1) to direct an NETP whose business is not established in the EU to appoint a VAT representative.
Once appointed, the VAT Representative is responsible to the same extent as the taxable person for all aspects of the taxable person’s VAT affairs including liability for VAT.
This power was strengthened as part of a package of measures introduced in Finance Bill 2016 to tackle VAT evasion through online sales.
From 7 November 2016, the Department has the power to direct an NETP which has no EU establishment to appoint a VAT representative who
- is established in the UK, and
- is fit and proper.
You should only agree to the appointment of a particular individual in the capacity of a VAT Representative if you are confident that they will be able to, if necessary, meet their principal’s VAT debts. (It is likely that anybody acting as a VAT Representative will need to have taken out some form of financial protection.)
From 13th October 2016, the Department may choose to require some form of security from a taxable person who is not established in the UK whether or not there has been any direction regarding the appointment of a VAT representative."
Steve Botham
www.covertax.co.uk
www.ukvatagent.co.uk
28 March 2021