The UK's HM Revenue & Customs has recently released new policy guidance on the appropriate steps for the deduction of VAT on the import of goods into the UK.
The guidance is important for businesses who reclaim import VAT on goods imported into the UK when not owning the goods, "toll operators", advisers and agents who deal with businesses importing goods to the UK.
HMRC is concerned that some businesses have reclaimed import VAT when they have not owned the goods at the point of import. Examples include "toll operators" who import goods – typically semi-finished pharmaceutical products – process them, and then distribute them in the UK for clinical trials for overseas owners, with title to the goods at all times remaining with the overseas owners. Toll operators typically pay the import VAT on behalf of the overseas owners and reclaim the import VAT even though at no stage do they own the goods. The issue also arises where overseas businesses ship goods and sell title just before the goods arrive in the UK; even though ownership and title have passed to the new owner, some overseas businesses still act as importer of record on UK import declarations, pay the import VAT to HMRC, receive the import VAT certificate (C79), and reclaim the import VAT.
HMRC clearly states in the new guidance that only the owner of the goods at the time of the import is entitled to reclaim the import VAT. Accordingly, the correct procedure for toll operators is for the overseas owner of the goods to be the importer of record and register for UK VAT or make a 13th VAT Directive reclaim as appropriate. Or, if the goods have already been sold to a buyer before the goods arrive in the UK, the new owner should be the importer of record.
From 15 July 2019, HMRC allows only claims for import VAT reclaims using the correct procedures.
HMRC accepts that the previous guidance was not clear on the correct procedures to apply and that businesses applying the wrong treatment in these situations who were acting in good faith should not be penalised. As a consequence, HMRC will not pursue VAT deductions made by non-owners before 15 July 2019 if the following criteria are met:
- VAT deductions were made in genuine error, through misinterpretation of the legislation or guidance;
- the owner of the goods would have been entitled to full import VAT recovery; and
- HMRC is satisfied that there has been no VAT deduction by another person.
The clarification of policy is consistent with the principle that, to recover input VAT, it is not sufficient merely to pay the VAT and hold the VAT invoice; the VAT needs to be linked to a taxable transaction or transactions.
All businesses involved with importing goods into the UK, including toll operators and agents, should review the structure of their contracts, shipping terms and supply chains to avoid losing entitlement to import VAT reclaims. Systems may need to be adjusted. Call off stock arrangements should be reviewed. It is essential that going forward the owner of the goods, at the point of import, is the importer of record and receives the C79. Supply chains should also be reviewed in the light of a possible no-deal Brexit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.