Clause 201 introduces schedule 27. Schedule 27 will make changes from 1 December 2012, to limit the UK VAT registration threshold to businesses that are established in the UK. That means that non-UK established businesses will have to register for VAT in the UK, even if their taxable turnover is below the UK’s domestic VAT registration threshold.

The change needs to be made following a judgment of the Court of Justice of the European Union in the Schmelz case, in which it ruled that businesses without an establishment in a member state are prohibited from benefiting from that state’s domestic VAT threshold. The majority of EU member states require non-established businesses to register for VAT, regardless of the value of  taxable supplies made in that member state. The change brings the UK into line with other member states that have no registration threshold for non-established businesses. Although tax receipts as a consequence of the changes are expected to be small, implementation costs are also expected to be negligible.

In conclusion, the clause and schedule introduce a limit to the UK VAT registration threshold to businesses that are established in the UK. That will reduce competition to UK businesses from unregistered businesses based overseas.