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Import VAT for non-owners, Brexit and customs duty

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Import VAT for non-owners

HMRC’s recent policy clarification on import VAT recovery is a timely reminder that businesses should not take for granted the fact that well-established practices are subject to change even without Brexit.

Before goods arriving from outside the EU can be brought into the UK an import declaration must be made, the goods must be cleared through customs and the importer must be identified to handle the import VAT and duty obligations and settle any amounts due. The importer’s details will confirm liability to customs duty and, if import VAT is due from a VAT registered business, this will generate the C79 form which regular importers will be familiar with.

HMRC has made it clear that, in its view, only the owner of the goods at the point at which they enter the UK may act as importer.

HMRC has announced that, from 15 July this year, it will refuse to repay import VAT to some organisations even if they have received form C79, which normally acts as evidence for a reclaim. Even though, in HMRC’s view, this guidance acts as a clarification of the application of the existing legislation, it has made it clear it will not take action relating to historic recoveries where the strict technical position has not been followed.

The guidance suggests that toll operators, typically acting for pharmaceutical businesses, that have generally been able to reclaim import VAT on goods they have never taken title to will be most acutely affected by this clarification. However, any organisation that might wish to act as importer but doesn’t own the goods in question at the time of importation will be affected. Therefore, irrespective of any planning for Brexit, all businesses involved in importing goods should pay close attention to this development.

VAT, the customs union and Brexit

For many organisations, efforts to prepare for Brexit have been hampered by continued uncertainty on the terms of the UK’s departure from, and withdrawal agreement with, the EU. Increasingly, the best advice appears to be to prepare for the worst and take whatever actions that are feasible in the time available.

What does this mean in practice? Well, a thorough review of existing supply chains (including incoterms) should be at the heart of this exercise. However, there are several supply chain issues that it is worth flagging as potential issues. The notes below cover issues related to buying and selling goods, but there are a host of other issues associated with services.

First, many UK businesses buy and sell goods which move location within the EU and never land in the UK. At present these UK businesses often benefit from an EU simplification which prevents unnecessary VAT compliance obligations arising because of these movements. However, once the UK leaves the EU’s VAT union these businesses may be obliged to register for VAT in the EU (and in some countries appoint a fiscal representative).

Second, all goods moving between the UK and the EU post-Brexit will be subject to customs declarations in some shape or form. To help mitigate the full impact of this, the government has announced several measures to ease the transition in the event that the UK leaves the EU without a withdrawal agreement (a ‘no deal’ Brexit), including the reduction of customs tariffs to zero for 12 months on 87% of goods (by value) entering the UK. However, to protect the UK’s most sensitive markets, tariffs will be maintained on a significant number of goods. It remains critically important to determine the correct customs classification of imported goods in order to remain compliant and ensure the liability to tariffs can be determined correctly.

Finally, it’s absolutely critical that businesses check whether they have a UK EORI number before any no-deal Brexit. 

Brad Ashton & Philip Munn, RSM