Research and analysis

Executive Summary: Import of services among VAT-unregistered businesses 2018

Published 15 July 2025

This research was commissioned and delivered under previous administrations in 2018.

HM Revenue and Customs (HMRC) Research Report 824

1. Introduction

This research was commissioned by HMRC to provide more information on the nature and scale of services imported by VAT unregistered businesses (from both inside and outside the European Union). In the context of the UK’s exit from the EU the research had two principal objectives:

• to understand overseas trade behaviour of VAT unregistered businesses

• to understand the impact that EU exit might have on small UK businesses buying in services from overseas

A total of 196 telephone interviews were conducted with owners of VAT unregistered businesses that had imported services in the preceding 12 months.

2. Importing services

2.1 Behaviour over the last 12 months

For most of the businesses that had imported services over the last 12 months, this was the only form of overseas trade they had conducted: 82% had only traded services (and not goods), while 18% had traded goods in addition to services. Looking specifically at the type of service trade conducted, 94% had only imported services (and not exported services), while 6% that had imported services had also exported services. Typically, the number of services that businesses imported was also limited: half of businesses (52%) had only imported one type of service in the last 12 months.

Three types of services stood out as being the most commonly imported: 45% of businesses imported website design and hosting (for example, storage on an external server or providing internet access), 41% imported e-commerce services (for example, using a website or app as a platform to sell to customers), and 37% imported marketing services (for example, social media advertising or search engine optimisation). While a variety of other services had also been imported, each other type had only been imported by less than 10% of businesses.

The value of imported services was quite low, 57% of businesses had imported less than £1,000 worth of services in the last 12 months. E-commerce services had the highest average value amongst the three main types of imported services, with a median annual value of £750.

Businesses were more likely to have imported services only from countries outside of the EU (43%) than from inside the EU (25%) or from both inside and outside the EU (25%). This pattern was more pronounced among businesses that imported website design and hosting: 71% of businesses had imported these services from non-EU countries. The origin of e-commerce and marketing services were both closely aligned to the overall pattern of service origin.

E-commerce and marketing services were imported more frequently than website services. Two thirds of businesses imported e-commerce (65%) and marketing services (64%) at least monthly. More than half (56%) of businesses that had imported website services had only purchased them once over the last 12 months.

The most common reason that businesses chose to import website services was that importing provided better value for money (53%). The most common reason given for importing e-commerce and marketing services was due to them being unavailable in the UK (49% and 50%).

Few businesses (12%) used an intermediary to import services. Of these, most used an agent or broker and engaged with them through an online platform or app.

2.2 Recent and expected changes

Most businesses had seen the value of imported services remain the same over the 12 months prior to their participation in the research. Although, a significantly higher proportion of those that had imported from outside the EU reported that this was the case (71%) than those that had imported from inside the EU (57%). The value of services for both origins was more likely to have increased (29% EU; 21% non-EU) than decreased (12% EU; 6% non-EU).

When asked about expectations over the next 12 months, over half of businesses expected that the value of imported services would remain the same (57% EU and 58% non-EU). A slightly higher proportion of businesses that imported from outside the EU (30%) anticipated an increase in the value of imported services than those that had imported from inside the EU (23%). Less than one in ten anticipated that the value of imported services would decrease (10% for EU and 7% for non-EU).

Considering the UK’s planned departure from the EU, 45% of businesses importing from the EU anticipated no effect on their trade behaviour. Conversely, 40% expected that the UK’s exit would have an impact on their EU service imports, citing expected price increases and changes to regulation. The remaining 15% reported that they did not know whether to expect a change to their EU service imports.

Only 21% of businesses that had imported from outside the EU anticipated that the UK’s exit would have an impact on those service imports. 67% anticipated that the exit would not have an impact, and 12% did not know what to expect.

2.3 Place of supply

When importing services, 60% of businesses reported they were treated as a business (and not an individual) for tax purposes. Overall, 29% of businesses were asked to provide proof that they were a business.

The majority (82%) of businesses reported that they include the value of imported services when calculating annual turnover, in accordance with reverse charge rules. However, awareness and understanding of the term ‘reverse charge’ was low: only 19% of businesses were aware of this term and even fewer understood how it applied to their business (8%).

2.4 Importing and exporting goods

An additional 322 short telephone interviews were conducted with owners of VAT unregistered businesses that had imported or exported goods (but had not imported services) in the preceding 12 months. Due to the sampling approach taken to narrow the industry (SIC) sectors in scope, the results of this survey are not representative of the overall population of VAT unregistered businesses that trade goods. For this reason, this report will discuss these findings at an overview level only.

Within the selected sectors, the majority of businesses that had conducted overseas trade of goods over the last 12 months (and not imported services) had imported goods over that period. Only a minority had exported goods. A similar proportion of businesses had imported from EU and non-EU countries, although slightly more from outside the EU. The majority had imported finished (as opposed to unfinished) goods.

The value of exported goods was on average higher than the value of imported goods, and the value of goods that had been imported from the EU was higher than goods imported from outside the EU.