U.K. Tax Office Puts Spotlight on Importers Unregistered for VAT

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By Hamza Ali

The U.K. tax authority has launched a four-month study of U.K. and EU importers that aren’t registered for value added tax (VAT), another piece of its focus on avoidance and fraud.

The IFF Research firm will look at unregistered businesses that import goods into the U.K. “to understand current international trading activity and behaviors,” according to an Aug. 29 announcement from Her Majesty’s Revenue and Customs. The research began in August and will continue through December.

The announcement fits into a broader push from HMRC to rein in importers that aren’t registered for VAT. In May, it announced it would require warehousing businesses like Amazon.com Inc. to complete more compliance checks on their overseas clients.

Foreign businesses using online marketplaces to sell to U.K. customers costs the government as much as 1.5 billion pounds ($1.9 billion) of unpaid VAT a year.

Flagging Businesses

The study could help HMRC identify importers that aren’t aware they should be VAT-registered, said Daniel Lyons, indirect tax partner at Deloitte UK.

“It seems to me that at least part of this exercise must be about identifying unregistered businesses which should be registered and are unaware of their obligation to register,” he said.

‘Aim’ is Understanding

“The study’s aim is to understand the current trading activity and behavior of UK businesses purchasing services from overseas,” an HMRC spokesman said Aug. 29.

The research firm will also be focused on and the impact of Place of Supply rules, HMRC said.

Place of Supply rules mean that VAT-unregistered U.K. businesses don’t usually need to pay VAT on services purchased from overseas. This leads to different outcomes for U.K. VAT on unregistered businesses depending on whether they purchase services from within or outside the U.K..

HMRC is also conducting studies until December to determine how large and mid-size businesses interact with it, the agency announced.

To contact the reporter on this story: Hamza Ali at hali@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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