Non-Established Taxable Person (NETP)

Who counts as an NETP: the establishment test

The boundary is a UK establishment. VAT Notice 700/1 defines an NETP as “any person who does not have a UK establishment,” and says a UK establishment exists if either the place where essential management decisions are made and the business’s central administration is carried out is in the UK, or the business has “a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK.” The second limb is the fixed establishment test, the same idea the EU uses and covered in its own entry.

HMRC’s manual tells its officers to consider where the day-to-day activities and running of the business take place, usually the principal place of business. It lists what doesn’t count on its own: a registered, serviced or virtual office address or a mail forwarding service “will not create a UK establishment,” and goods sold from a UK fulfilment warehouse that only sends and receives goods are unlikely to create one either.

UK incorporation needs care. The manual says a company incorporated in the UK would not alone constitute a UK establishment, and that you look at how much of the management and running of the business happens in the UK. Notice 700/1 says HMRC would normally consider a UK-incorporated company to have an establishment as long as it can make or receive business supplies at its registered business address. A US company with a UK subsidiary should get advice on which side of the line the subsidiary falls.

Two edge cases from the manual. A business found to have a UK establishment is not an NETP and cannot be registered under Schedule 1A; it registers under the normal rules, with the threshold. And businesses established in the Isle of Man are not treated as NETPs and keep the UK threshold.

What starts the 30-day clock

Notice 700/1 gives two triggers for an NETP, each with its own deadline. If you make any taxable supply in the UK, you must tell HMRC “within 30 days of the date of making the supply.” If you expect to make a taxable supply in the UK in the next 30 days, you must tell HMRC “within 30 days of the date that the expectation arose.”

The effective date is earlier than the deadline. HMRC’s manual says the effective date of registration “will be the date of the first supply or the date the expectation to make taxable supplies in the UK first arose,” and that HMRC can register an NETP retrospectively from the day the liability arose. Notice 700/1 adds that you must start keeping records and accounting for VAT from the date you become liable to register, and that you’ll “have to account for VAT from that date even if you did not charge it to your customers.”

The expectation trigger is the one foreign sellers miss. Stripe’s UK guide gives the US example directly: a US business selling digital services must register “as soon as you have reasonable grounds to believe that a UK customer will purchase your services,” and if a UK consumer has already bought, within 30 days of the sale. So the clock can start before the first payment arrives, on the date those reasonable grounds first existed.

It is not every UK sale that counts. Stripe defines a taxable transaction for this purpose as “any sale made in the UK that’s neither exempt from VAT nor subject to reverse charge,” and zero-rated sales are included. HMRC’s manual says that when an overseas business supplies services to a business in the UK, the reverse charge usually applies and the supply is not treated as a taxable supply by the overseas business for Schedule 1A. Stripe draws the practical conclusion: if you only sell to UK businesses, you don’t need to register. One consumer sale changes that.

Late registration has a cost. Notice 700/1 sets the late registration penalty as a percentage of the net VAT due: 5% if you register less than 9 months late, 10% at 9 to 18 months, and 15% beyond that, and HMRC may register you without your agreement.

Stripe Tax and the UK registration

Stripe’s UK page lists the registration threshold as “1 transaction” and says obligations monitoring includes any taxable transaction. Stripe Tax threshold monitoring can therefore flag the UK after the first consumer sale. Two limits matter against a 30-day deadline. Stripe says new transactions are added to monitoring “within 7 days,” and that the tool “highlights potential registration obligations, but it’s up to you to confirm whether registration is actually required.” Neither the alert nor its absence settles whether you were liable earlier on the expectation test.

Registering is a separate step from telling Stripe. Stripe’s registration guide says to register with a jurisdiction “before you begin collecting,” either directly with the tax authority or, outside the US, by asking Stripe to register on your behalf through a Taxually account. If you register directly with HMRC, you then add a United Kingdom registration in the Locations tab of the Tax page in the Stripe Dashboard, choosing Start collecting immediately if the registration is already active or Schedule tax collection with its effective date.

Once the UK registration is active, Stripe’s guide says that for a remote seller providing digital services to UK customers, “UK VAT is typically collected on sales to individuals,” and that “tax isn’t charged on sales to business customers who provide their VAT identification number.” The UK standard rate is 20%.

The gap to watch is between HMRC’s effective date and the date Stripe starts collecting. HMRC’s date can reach back to the first sale. Stripe collects from the moment you add the registration or the start date you schedule, so sales in between went out without VAT that is still owed. Notice 700/1 also says not to show VAT as a separate item on invoices until you have your registration number, and that you may wish to increase your prices to include VAT in the meantime.

Worked example: a US SaaS company’s first UK subscriber

A software company based in Denver sells a £49 a month plan through Stripe Checkout, priced exclusive of tax. It has never targeted the UK. On 4 March, a consumer in Manchester subscribes. That is a taxable UK supply of a digital service to a consumer, so the company is now an NETP.

The clock: under Notice 700/1, the company must tell HMRC within 30 days of 4 March, so by 3 April. Under the manual, the registration takes effect from 4 March, the date of the first supply. Had the company already had reasonable grounds to expect a UK consumer sale before 4 March, the liability would date from when that expectation arose instead.

The March charge went out at £49 with no VAT, and VAT is still due on it from 4 March. Notice 700/1 says you must account for VAT from the date you are liable “even if you did not charge it to your customers.” How to calculate the amount owed on that charge is a question for the company’s accountant.

On 20 March the company registers through HMRC’s online service and adds the United Kingdom registration in Stripe. From that point Stripe Tax adds VAT at 20% to UK consumer sales: the April renewal is £49 plus £9.80 VAT, £58.80 in total. A UK business customer who provides its VAT number pays £49 with no VAT, under the reverse charge.

In QuickBooks, the April renewal is £49 of revenue and £9.80 of UK VAT owed to HMRC. The £9.80 is not income. It belongs in a liability account for UK VAT, and that account should also carry the VAT owed on the March sale, so its balance matches what goes on the first UK VAT return.

What it means for your QuickBooks file

Registration as an NETP adds a new tax liability to the books of a business that may only have dealt with US sales tax before. The bookkeeping principle is the same as for sales tax: VAT collected from UK customers is held for HMRC, not earned, so it goes to a liability account and leaves it when you pay HMRC.

Keep UK VAT apart from everything else. A liability account used only for UK VAT, separate from US sales tax payable and from any EU VAT you collect through the One Stop Shop, lets you reconcile its balance to the UK VAT return each period. If Stripe charges your UK customers in pounds and your QuickBooks Online file reports in US dollars, agree with your accountant how the account is kept, because the figure you owe HMRC is the one on the UK return, not its dollar translation.

Two dates belong in your close notes: the effective date HMRC gives you, which is when UK VAT starts building in the liability account, and the date your Stripe UK registration became active. If they differ, the sales in between need an adjustment for the VAT you owe but did not collect.

HMRC can also ask you to appoint a UK VAT representative, or ask for security. Notice 700/1 says HMRC can direct some NETPs to appoint a tax representative who must be based in the UK and fit and proper, and that it cannot direct NETPs based in countries where certain mutual assistance arrangements exist. A representative is jointly and severally liable for your VAT debts and keeps your VAT records, so it changes who works from your figures, not where the VAT sits in your books.

Staying registered, and leaving

An NETP registration does not lapse when UK sales dip. Notice 700/11 says that because the threshold is not available to an NETP, “you cannot apply for voluntary VAT registration cancellation on the grounds of reduced turnover.” Its general rule for a business registered because it makes taxable supplies in the UK is that you must cancel the registration if you stop making taxable supplies. An NETP can cancel online or with form VAT7.

When you cancel with HMRC, expire the United Kingdom registration in Stripe as well. Stripe says expiring a registration stops tax collection but doesn’t deregister you with the authority, and that expiration is permanent, so a later UK registration means adding a new one.

Three other limits apply while you are registered. An NETP can’t join a VAT group: Notice 700/11 says so directly, and Notice 700/2 requires each body corporate in a group to be established or have a fixed establishment in the UK. When you register, Notice 700/1 says you are registered at your principal place of business, which “must be outside the UK” and should not be a third-party address such as a mail forwarding or registered office address. And the only exemption from registration in Schedule 1A is for a business whose UK supplies are all zero-rated, which a software company charging standard-rated VAT will not meet.