New rules due later this year mean businesses making sales in the UK without a permanent UK business establishment must register for VAT as soon as they start to trade. Will your business be affected?

THE CHANGES

Historically, non-UK businesses have been able to sell in the UK without registering for VAT unless and until their turnover exceeds the UK.s VAT registration threshold (currently £73,000). However, the rules will change on 1 December 2012, meaning that businesses not established in the UK that are supplying taxable goods and services within the UK must register for VAT here . no matter how small their turnover may be.

WHO WILL BE AFFECTED?

The new measure will affect businesses that sell goods and services in the UK from a temporary presence here, e.g. at a trade fair or other event. For example, a US based business whose employees bring its product into the UK to sell to customers from an exhibition stand would be required to charge VAT on its sales right from the start. Equally, non-UK traders taking part in a Christmas or specialty market would need to consider the rules carefully.

Broadly speaking, the changes will not apply to businesses that ship goods or sell services directly to UK customers from abroad, although some of these organisations may already be required to register for VAT in the UK under different rules. Also unaffected are vendors of electronic media sold to private customers in the UK, provided they are already VAT registered – either in the UK only or under the EU wide special scheme for electronic services.   However, those that have opted out of the special scheme and  are not UK VAT registered could well be required to account for VAT on their sales of electronic media and should seek advice on their position.

Overseas businesses that sell to their customers from a permanent UK presence will not be affected by the new rules and will not need to register unless their turnover exceeds the normal UK VAT registration threshold. However, they would need to consider their UK income for corporation tax obligations.

HOW DO I REGISTER AND WHAT WILL HAPPEN?

HM Revenue & Customs (HMRC), the UK tax authority, has yet to finalise precise details of how and when businesses should register. However, the process is expected to work along the following lines:

■ Affected businesses must notify HMRC of their liability to register, which can be done by means of an online application.

■ Once the application has been accepted, HMRC will issue a VAT registration number which must be quoted on all UK sales invoices. In most cases, you must then charge UK VAT at 20% of the net sale price of your goods or services, itemising it on the sales invoice.

■ The VAT you charge must be paid to HMRC by filing a regular online VAT return (probably quarterly although HMRC might allow longer or shorter periods) and submitting your payment electronically. You may be able to offset UK VAT you pay on costs and expenses whilst in the country. Not all UK sales will be subject to VAT, for example some books, magazines and food products may be sold VAT free. If all or most of your sales relate to zero-rated products, you may apply to HMRC to be excused from registering. If your UK trade is a one off event, you may cancel your VAT registration afterwards. Alternatively, you could leave it open if you have firm plans to sell in the UK again (e.g. at the same event the following year) but you would have to keep submitting VAT returns in the meantime (as .nil returns. if necessary).

WHEN DO I REGISTER?

This can be tricky to work out and (after 1 December 2012) it looks like it will be determined in one of two ways:

■ You must submit your application within 30 days of making your first sale in the UK. The VAT registration will take effect on the day of your first sale.

■ If, at any point after 1 December 2012, you form an intention to make UK sales within the next 30 days, you must submit your application within the next 30 days. The VAT registration takes effect on the day you formed the intention to sell here. For example, if you decide on 1 January 2013 that you will sell from a UK market on 15 January, you must apply no later than 30 January. You will be registered with effect from 1 January 2013.

It may be possible (and indeed desirable) to apply to register well in advance. This way, you will be ready to charge VAT to your customers right from the start and will have your UK VAT number available to quote on your invoices and other business correspondence.