The recent First-tier Tribunal decision in TSI Instruments Ltd v HMRC [2025] UKFTT 1278 (TC) reinforces how HMRC is now challenging the recovery of import VAT and highlights the importance for businesses to clearly understand their role in the supply chain when receiving goods for repair or processing, especially where no sale takes place. Input VAT recovery depends not only on paying the import VAT but also on whether the business owns the goods or has disposal rights, and whether the value of the imported goods is economically linked to taxable supplies.
About the case: TSI imported goods into the UK for servicing and repair but did not own the goods at the time of importation. The FTT ruled that TSI was not entitled to reclaim the import VAT as input tax because two conditions were not met:
the importer must own (or have disposal rights over) the goods at import; and
the value of the imported goods must be reflected in the price of taxable outputs or otherwise form part of their cost base.
Although TSI bore the import VAT cost, the lack of ownership and cost connection meant recovery was denied.
This follows the earlier Piramal Healthcare UK Ltd v HMRC [2023] UKFTT 891 (TC) decision, which first highlighted the risk where businesses import goods they do not own, establishing the principle that ownership and economic link to taxable outputs are both essential for input VAT recovery.
HMRC’s dual target approach: These decisions illustrate HMRC’s coordinated enforcement, where both a customs officer and a VAT inspector may independently or jointly review import VAT recovery:
Customs officer’s focus: Were the goods correctly declared at import, and was the declared importer legally entitled to act as importer of record (ownership or disposal rights)?
VAT inspector’s focus: Has the business correctly recovered import VAT as input tax, and is the cost of those goods genuinely linked to taxable supplies?
In practice, this means import VAT exposure can arise twice: once through Customs (for incorrect import declarations) and again through VAT audit (for disallowed recovery), meaning HMRC can therefore raise assessments from either side.
Businesses should:
Review who is listed as the importer on customs entries, and whether that entity holds ownership at import;
confirm that the imported goods’ value is embedded in your taxable supplies or cost base;
consider customs reliefs such as Inward Processing Relief or revised contractual arrangements to mitigate risk; and
be prepared for dual scrutiny by ensuring alignment between your customs declarations and VAT records.
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TSI Instruments and import VAT recovery
HMRC’s dual target approach.
The recent First-tier Tribunal decision in TSI Instruments Ltd v HMRC [2025] UKFTT 1278 (TC) reinforces how HMRC is now challenging the recovery of import VAT and highlights the importance for businesses to clearly understand their role in the supply chain when receiving goods for repair or processing, especially where no sale takes place. Input VAT recovery depends not only on paying the import VAT but also on whether the business owns the goods or has disposal rights, and whether the value of the imported goods is economically linked to taxable supplies.
About the case: TSI imported goods into the UK for servicing and repair but did not own the goods at the time of importation. The FTT ruled that TSI was not entitled to reclaim the import VAT as input tax because two conditions were not met:
the importer must own (or have disposal rights over) the goods at import; and
the value of the imported goods must be reflected in the price of taxable outputs or otherwise form part of their cost base.
Although TSI bore the import VAT cost, the lack of ownership and cost connection meant recovery was denied.
This follows the earlier Piramal Healthcare UK Ltd v HMRC [2023] UKFTT 891 (TC) decision, which first highlighted the risk where businesses import goods they do not own, establishing the principle that ownership and economic link to taxable outputs are both essential for input VAT recovery.
HMRC’s dual target approach: These decisions illustrate HMRC’s coordinated enforcement, where both a customs officer and a VAT inspector may independently or jointly review import VAT recovery:
Customs officer’s focus: Were the goods correctly declared at import, and was the declared importer legally entitled to act as importer of record (ownership or disposal rights)?
VAT inspector’s focus: Has the business correctly recovered import VAT as input tax, and is the cost of those goods genuinely linked to taxable supplies?
In practice, this means import VAT exposure can arise twice: once through Customs (for incorrect import declarations) and again through VAT audit (for disallowed recovery), meaning HMRC can therefore raise assessments from either side.
Businesses should:
Review who is listed as the importer on customs entries, and whether that entity holds ownership at import;
confirm that the imported goods’ value is embedded in your taxable supplies or cost base;
consider customs reliefs such as Inward Processing Relief or revised contractual arrangements to mitigate risk; and
be prepared for dual scrutiny by ensuring alignment between your customs declarations and VAT records.
