Category Archives: International

Brexit: The future of Customs arrangements

By   August 21, 2017

In a paper called Future Customs arrangements: A Future Partnership Paper the Government have given us some idea of what the UK’s relationship with the EU may look like after Brexit.

It is a paper which is part of a series which sets out the key issues and forms part of the Government’s stated vision for the relationship (called a “partnership” in the document) and is said to explore how the UK and EU will “work together” with respect to Customs. The aim is to facilitate the “most friction-less trade possible in goods between the UK and the EU”.  It is noted that this approach is purely “aspirational” and represents the first steps in exploring the position. However, it does inform on the Government’s thinking. The two main approaches may be summarised as:

  1. The Streamlined Arrangement

A highly streamlined customs arrangement between the UK and the EU, streamlining and simplifying requirements, leaving as few additional requirements on EU trade as possible. This would aim to;

  • continue some of the existing arrangements between the UK and the EU
  • put in place new negotiated and potentially unilateral facilitations to reduce and remove barriers to trade
  • implement technology-based solutions to make it easier to comply with Customs procedures

This approach involves utilising the UK’s existing third country processes for UK-EU trade building on EU and international precedents, and developing new innovative facilitations to deliver as friction-less a Customs border as possible.

  1. A New Partnership

A new customs partnership with the EU, aligning the UK’s approach to the Customs border in a way that removes the need for a UK-EU Customs border. One potential approach would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU.

This is of course unprecedented as an approach and could be challenging to implement and the UK Government will look to explore the principles of this with business and the EU.

The document also considers that the Government would seek to introduce an interim period for implementing changes to Customs arrangements.

Discussions with affected businesses will continue before the publication of a Customs Bill in the autumn.

We will monitor this situation and bring you information on any developments. In the meantime, those businesses which carry out cross-border transactions in goods may want to review their current procedures in anticipation of the changes which will surely be introduced in one form or another.

Alas, as with anything Brexit related, nobody can be sure what the future holds and there will be a great deal of uncertainty until we know the actual outcome and consequently, the impact on business.

VAT EU Claims – A Reminder

By   August 9, 2017

Refunds of VAT for UK businesses incurring other EC Member States

If a business incurs VAT in another EC Member State it is possible to recover it.  It is not claimed on a UK VAT return, but via a special claim procedure.  Details of how this process works and what may be claimed are set out in my previous article

The deadline for these claims is 30 September 2017.

Any applicant must not be registered or registrable in the Member State from which they are claiming a refund, nor must they have a permanent business establishment in that EU country. There are a number of other rules to be considered as well, so it pays to ensure that the claim is valid before time and effort is expended in compiling a claim.  We are happy to advise on this.

Applications relating to VAT incurred in the year 2016 must be submitted by 30th September 2017 and there is no leeway to extend this deadline.

 

Incoterms. What are they, how can they be of use for VAT?

By   August 3, 2017
VAT – Cross border sales of goods

Incoterms stands for International Commercial Terms. These are published by the International Chamber of Commerce (ICC) and describe agreed commercial terms. These rules set out the responsibilities of buyers and sellers for the supply of goods under a contract. They are very commonly used in cross-border commercial transactions in order that both sides in a transaction are aware of the contractual position. They help businesses avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. The latest terms were published in 2010 and came into effect in 2011.

The use of Incoterms for assistance for VAT purposes

One of the most difficult areas of providing VAT advice is obtaining sufficient detailed information to advise accurately and comprehensively.  Quite often advisers are given what a client believes to be the arrangements for a transaction. This may differ from the actual facts, or the understanding of the other party in the transaction.

Pragmatically, this uncertainty about the details may be increased if; a number of different people within an organisation are involved, it is a new or one-off type of transaction, there are language difficulties, or communication and documentation is less than ideal. In such cases, incoterms will provide invaluable information which gives clarity and certainty and usually give a sound basis on which to advise. This enables the adviser to establish the place of supply (POS) and therefore what VAT treatment needs to be applied.

So what is this set of pre-defined international contract terms?

They are 11 pre-defined terms which are subdivided into two categories:

Group 1 – Incoterms that apply to any mode of transport are:

EXW – Ex Works (named place)

The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. EXW means that a buyer incurs the risks for bringing the goods to their final destination. The buyer arranges the pickup of the freight from the supplier’s designated ship site, owns the in-transit freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation.

Most jurisdictions require companies to provide proof of export for VAT purposes. In an EXW shipment, the buyer is under no obligation to provide such proof, or indeed to even export the goods. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed.

FCA – Free Carrier (named place of delivery)

The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.

It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading the goods on to the buyer’s carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.

CPT – Carriage Paid To (named place of destination)

The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named place (usually a destination port or airport). The shipper is not responsible for delivery to the final destination (generally the buyer’s facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.

CIP – Carriage and Insurance Paid to (named place of destination)

This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value.

DAT – Delivered At Terminal (named terminal at port or place of destination)

This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/VAT/customs costs are to be borne by the buyer.

DAP – Delivered At Place (named place of destination)

The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. Duties are not paid by the seller under this term. The seller bears all risks involved in bringing the goods to the named place.

DDP – Delivered Duty Paid (named place of destination)

The seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and VAT. The seller is not responsible for unloading. This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations.

Group 2 – Incoterms that apply to sea and inland waterway transport only:

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the buyer’s vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term can be used only for sea or inland waterway transport.

FOB – Free On Board (named port of shipment)

FOB means that the seller pays for delivery of goods to the vessel including loading. The seller must also arrange for export clearance. The buyer pays cost of marine freight transport, insurance, unloading and transport cost from the arrival port to destination. The buyer arranges for the vessel, and the shipper must load the goods onto the named vessel at the named port of shipment. Risk passes from the seller to the buyer when the goods are loaded aboard the vessel.

CFR – Cost and Freight (named port of destination)

The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of export. The shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer’s facilities), or for buying insurance. CFR should only be used for non-containerised sea freight, for all other modes of transport it should be replaced with CPT.

CIF – Cost, Insurance and Freight (named port of destination)

This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their. CIF should only be used for non-containerised sea freight; for all other modes of transport it should be replaced with CIP.

 Allocations of costs to buyer/seller via incoterms

Summary Chart

Incoterms Chart

 

VAT: More on agent/principal – Latest from the courts

By   July 3, 2017

Lowcost Holidays Ltd

There is a very important distinction in VAT terms between agent and principal as it dictates whether output tax is due on the entire amount received by a “middle-man” or just the amount which the middle-man retains (usually a commission). It is common for the relationship between parties to be open to interpretation and thus create VAT uncertainty in many transactions.

It appears to me that this uncertainty has increased as a result of the growing amount of on-line sales and different parties being involved in a single sale.

By way of background, I looked at this issue at the end of last year here

The case

On a similar theme, the First Tier Tribunal (FTT) case of Lowcost Holidays Ltd the issue was whether the Tour Operators’ Margin Scheme (TOMS) applied to Lowcost’s activities.

Background

Lowcost was a travel agent offering holiday accommodation in ten other EU Member States, and other countries outside the EU, for the most part to customers based in the UK. The issue between the parties is whether Lowcost provided holiday accommodation to customers as a principal, dealing in its own name, under article 306 of Directive 2006/112, the Principal VAT Directive and therefore came within TOMS or whether it acted solely as an intermediary or agent (in which case TOMS would not apply and the general Place Of Supply rules apply).

Decision

The FTT found in favour of the appellant. HMRC had argued that Lowcost was buying and selling travel and accommodation as principal, however, the FTT decided that the contracts which Lowcost entered into with; hotels, transport providers and holidaymakers were clear that the arrangement was for the appellant acting as agent. The helpful Supreme Court case of SecretHotels2 (which I commented on here) was applied in this case. The main point being that the nature of a supply is to be determined by the construction of the contract – unless it is a ‘sham’ and great weight was given to the terms of Lowcost’s contracts rather than what HMRC often call the “economic reality”.  Specifically highlighted to the court was the fact that Lowcost set the prices for the holidays, which HMRC pointed out would be inconsistent with an agency arrangement. The FTT decided that this was outweighed by the actual terms of the contracts.

Consequently, as Lowcost acted as agent (for the providers of the services not the holidaymaker) the Place Of Supply was determined by reference to where the supply was received under the general rule.  In this case, this is VAT free when the services were received by principals located outside the UK.

As with all TOMS and agent/principal matters it really does pay to obtain professional advice.

VAT and Customs Duties. Bringing goods into the UK – A brief guide

By   June 12, 2017

VAT and duty on and imports and acquisitions 

The rules covering bringing goods into the UK are complex and set out in different areas of the legislation and HMRC guidance. I thought it may be helpful bring some of the most salient rules together in one place. Of course, with Brexit, some of the information below may be subject to change. Most likely, acquisitions will take on more of the rules applicable to imports, but we shall see…

If you are bringing goods into the UK it is important to recognise the VAT and duty rules and procedures.  You must ensure that you pay the right amount of VAT and import duties via the correct mechanism.

Goods brought into the UK from other EC countries are called acquisitions rather than imports, and this is an important distinction as we shall see below.

The details and practicalities can be complex and you may want to seek advice or use an agent or freight forwarder to handle your responsibilities, particularly if you are new to international trade or only need to bring goods here occasionally.

Acquisition of goods from EC Member States

The EC Member States

The 28 EC countries are: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

Information

If you are UK VAT registered you need to give your supplier your VAT number. This allows the supplier to treat the sale to you as VAT free.  You will need a VAT invoice as with any other purchase. If not UK VAT registered you will pay VAT applicable in the Member State of the supplier.

Accounting for VAT 

You must account for VAT on acquisitions (“acquisition tax”) on your VAT return. VAT is charged at the normal UK rate of VAT for those goods.  You reclaim this acquisition tax in the same way as you reclaim input tax on purchases of supplies within the UK.  So for most businesses the effect is VAT neutral.  In this way there is no difference between buying the goods in the UK or another EC Member State so it rules out cross-border “VAT rate shopping”. There are no Customs Duties to pay on acquisitions.

Reporting

All VAT-registered businesses must show the total value of goods acquired from other EU Member States in box 9 of their VAT Return.

In addition, those who trade in the EC above the Intrastat exemption threshold in force during the year must also complete a monthly Supplementary Declaration (SD). The threshold is £1.5 million.

Importing goods from outside the EC

Your responsibilities for imports

You are normally responsible for clearing the goods through UK customs and paying any taxes and duties. Your supplier needs to provide the documentation you need to clear the goods through Customs. If you are importing you may have to pay import duty.

You will need to decide whether to use an agent to handle your responsibilities.  Freight forwarders can handle Customs clearance as well as transport. You can find reputable freight forwarders through the British International Freight Association: here 

You need to check what import duty applies

Import duty is based on the type of goods you are importing, the country they originate from and their value. HMRC’s Integrated Tariff sets out the classification of goods and the rates of duty in detail: here

Confirm what paperwork you require from the supplier for Customs clearance

This normally includes an invoice and a copy of the transport documents.  You may need proof of the origin of the goods to claim reduced import duty for goods from certain countries. A valuation document is also normally required for imports above a set value.

Complete an import declaration

You normally declare imports using the Single Administrative Document (SAD).  If you are registered for VAT in the UK you will need an EORI (Economic Operator Registration & Identification) to enable your inbound commercial shipments to be cleared through the automated  CHIEF (Customs Handling of Import and Export Freight). This is made up of your VAT number, plus a further three digits.

Release of goods

You will need to pay VAT and duty to get the goods released. You pay VAT at the normal UK rate for those goods when sold in the UK.

Deferment

Regular importers are able to defer payment of VAT and duty by opening a deferment account with HMRC. You need to provide security and must agree to pay by direct debit. It is also possible to use your agent or freight forwarder’s deferment account.

Accounting for VAT

HMRC will send you a monthly C79 certificate showing the import VAT you have paid. You must retain this.  Certificates cover accounting transactions made in each calendar month should be received around the 24th of each month following imports logged the previous month.

You can reclaim VAT paid on imports on a C79 in the same way as you reclaim input tax on purchases of supplies within in the UK.  It is not possible to reclaim VAT on any other document, eg; an invoice.  Shipping or forwarding agents can’t reclaim this input tax because the goods weren’t imported to be used in part of their business.

NB: If you import works of art, antiques and collectors’ items they are entitled to a reduced rate of VAT.

You cannot reclaim import duty.

Be aware of special cases

Check whether any goods you are buying are subject to Excise Duty

Excise duty is charged on fuel, alcohol and tobacco products. It is charged on acquisitions from within the EU as well as imports from countries outside the EC. If goods are subject to excise duty, you pay this at the same time as you pay VAT and import duty.

VAT is charged on the value of the goods plus excise duty.

Warehousing

You may want to consider using a Customs warehouse if you expect to store imports for a long time. If you store goods in a Customs warehouse, you will not need to pay import duty and VAT until you remove the goods from the warehouse.

Storage ‘in bond’ like this is often used for products subject to excise duty, such as wine and cigarettes, although it is not limited to these goods.

Re-exported goods

You will also find it beneficial to find out about tax relief if you are planning to re-export goods you import.  There are special Inward Processing Relief (IPR) rules so that you do not have to pay import duty and VAT.  This relief can apply to imports that you process before re-exporting them.

Valuation of imported goods for VAT and Duties

There are six methods of valuing imported goods, however, in the vast majority of cases (over 90%) the “Transaction Method” is used and, in fact, you must use this method wherever possible.

Transaction Value

This is the price paid or payable by the buyer to the seller for the goods when sold for export to the EC adjusted in accordance with certain specific rules.

This may also cover situations where goods are imported from a processor. The “transaction value” may be “built up” or “constructed” by reference to the cost of processing plus any items to be added commonly referred to as “assists”.

What items must be added to the price paid or payable?

You must add the following to the price you pay (unless they are already included):

(a) Delivery costs. – The costs of transport, insurance, loading or handling connected with delivering the goods to the EC border must be included.

(b) Commissions. – Certain payments of commission and brokerage, including selling commission, must be included.

But you can exclude buying commission if it is shown separately from the price paid or payable for the goods.

(c) Royalties and licence fees. – You must include these payments when they relate to the imported goods and are paid by you as a condition of the sale to you of those goods.

(d) Goods and services provided free of charge or at reduced cost by the buyer. –  If you provide, directly or indirectly, any of the following, you must include in the customs value any part of the cost or value not included in the price charged to you by the seller:

  1. materials, components, parts and similar items incorporated in the imported goods including price tags, kimball tags, labels
  2. tools, dies, moulds and similar items used in producing the imported goods, for example, tooling charges. There are various ways of apportioning these charges

iii.          materials consumed in producing the imported goods, for example, abrasives, lubricants, catalysts, reagents etc which are used up in the manufacture of the goods but are not incorporated in them,

  1. engineering, development, artwork, design work and plans and sketches carried out outside the EC and necessary for producing the imported goods. The cost of research and preliminary design sketches is not to be included.

(e) Containers and packing. Include:

  1. the cost of containers which are treated for customs purposes as being one with the goods being valued (that is not freight containers the hire-cost of which forms part of the transport costs), and
  2. the cost of packing whether for labour or materials

Where containers are for repeated use, for example, reusable bottles, you can spread their cost over the expected number of imports. If a number of the containers may not be re-exported, this must be allowed for.

(f) Proceeds of resale. – If you are to share with the seller (whether directly or indirectly) the profit on resale, use or disposal of the imported goods you must add the seller’s share to the price paid. If at the time of importation the amount of profit is not known, you must request release of the goods against a deposit or guarantee.

(g) Export duty & taxes paid in the country of origin or export. – When these taxes are incurred by the buyer they are dutiable. However, if you benefit from tax relief or repayment of these taxes they may be left out of the customs value.

Summary

If you are new to acquisitions or importing it may be worthwhile talking to an expert.  This article only scratches the surface of the subject. There can be significant savings made by accurately classifying goods and applying the correct procedures and rates will avoid assessments and penalties being levied. Planning may also be available to defer when tax is paid on imports and acquisitions.

VAT evasion by non-EU online sellers

By   April 26, 2017

Investigation by The National Audit Office (NAO) into overseas sellers failing to charge VAT on online sales.

The NAO have investigated concerns that online sellers outside the EU are avoiding charging VAT. Full report here

The NAO has published the findings from its investigation into the concern that online sellers based outside the EU are not charging VAT on goods located in the UK when sold to UK customers. Online sales accounted for 14.5% of all UK retail sales in 2016, just over half of these were non-store sales, mainly through online marketplaces.

VAT rules require that all traders based outside the EU selling goods online to customers in the UK should charge VAT if their goods are already in the UK at the point of sale. In these cases, sellers should pay import VAT and customs duties when the goods are imported into the UK and charge their customers VAT on the final selling price. The sellers should also be registered with HMRC and are required to submit regular VAT returns.

Some of the key findings of the investigation are as follows:

HMRC estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 but this estimate is subject to a high level of uncertainty. This estimate represents between 8% and 12% of the total VAT gap (The VAT gap is the difference between the amount of VAT that should, in theory, be collected by HMRC, against what is actually collected) of £12.2 billion in 2015-16. UK trader groups believe the problem is widespread, and that some of the biggest online sellers of particular products are not charging VAT. These estimates exclude wider impacts of this problem such as the distortion of the competitive market landscape.

HMRC recognised online VAT fraud and error as a priority in 2014, although the potential risk from online trading generally was raised before this. In 2013 the NAO reported that HMRC had not yet produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading. The report found HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance but had shown less urgency in developing its operational response. Trader groups claim that online VAT fraud has been a problem as early as 2009, which has got significantly worse in the past five years. The Chartered Trading Standards Institute shares this view. Based on the emergence of the fulfilment house (a warehouse where goods can be stored before delivery to the customer) model, HMRC recognised online VAT fraud and error as one of its key risks in 2014 and began to increase resources in this area in 2015.

HMRC’s assessment is that online VAT losses are due to a range of non-compliant behaviours, but has not yet been able to assess how much is due to lack of awareness, error or deliberate fraud. Amazon and eBay consider that lack of awareness of the VAT rules is a major element of the problem. Amazon and eBay have focused on educating overseas sellers and providing tools to assist with VAT reporting and compliance. HMRC’s strategic threat assessment, carried out in 2014, concluded it was highly likely that both organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online.

HMRC introduced new legal powers to tackle online VAT fraud and error in September 2016. The new joint and several liability power gives HMRC a new way to tackle suspected non-compliance, and is the first time any country has introduced such a power for this purpose. The new powers include making online marketplaces potentially jointly and severally liable for non-payment of VAT when HMRC has informed them of an issue with a seller, and they do not subsequently take appropriate action.

Conclusion

Online VAT fraud and error causes substantial losses to the UK Exchequer and undermines the competitiveness of UK businesses. Compliance with the VAT rules is a legal requirement. Not knowing about the rules does not excuse non-compliance. The UK trader groups who raised the issue report having experienced the impact of this problem through progressively fewer sales. They consider HMRC has been slow in reacting to the emerging problem of online VAT fraud and error and that there do not seem to be penalties of sufficient severity to act as a substantial deterrent.

It is too soon to conclude on the effectiveness and impact of HMRC’s new powers and whether the resources devoted by HMRC to using them match the scale of the problem. We recognise that HMRC must consider effort and efficiency in collecting VAT but its enforcement approach to online trade appears likely to continue the existing unfair advantage as perceived by UK trader groups. This is contrary to HMRC’s policy of encouraging voluntary compliance and it does not take account of the powerful effect that HMRC’s enforcement approach has on the operation of the online market as a whole. We intend to return to this subject in the future.

Further to the above, this article suggests that HMRC should have acted even earlier.

VAT Implications of Transfer Pricing – Valuation

By   April 24, 2017

The EC has recently published a paper on the possible VAT implications of Transfer Pricing (TP) here

This Working Paper considers when TP adjustments may affect the application of VAT. The main conflict is highlighted as the difference between how sales are valued. For TP purposes value is determined via arm’s length (open market value) versus the subjective value, ie; the price actually paid, for VAT purposes.

Transfer Pricing

The arm’s length principle is the international transfer pricing standard that Organisation for Economic Co-operation and Development (OECD) member countries have agreed, and which should be used for tax purposes by Multinational Enterprise Group (“MNE group”) and tax administrations, including the price, match comparable market conditions and that profits are fairly divided between the jurisdictions in which MNE operates.

According to the OECD TP Guidelines, by seeking to adjust profits by reference to the conditions which would have been obtained between independent enterprises for comparable transactions and under comparable circumstances, ie; in “comparable uncontrolled transactions” the arm’s length principle treats the members of an MNE group as entities operating separately rather than as inseparable parts of a single unified business. Because the separate entity approach treats the members of an MNE group as if they were independent entities, attention is focused on the nature of the transactions between those members and on whether the conditions thereof differ from those that would be obtained in comparable uncontrolled transactions.

VAT

It is not generally required for VAT purposes that the consideration which must be present in order for a transaction to be qualified as taxable, has to reflect the market value of the goods or services supplied. In fact, as to the concept of “consideration”, it is settled case law of the CJEU that the taxable amount for the supply of goods or services is represented by the consideration actually received for them.

I shan’t rehearse the details here as they are clearly set out in the paper linked to above.

However, it is an important area of tax and I strongly recommend reading the Working Paper for any business or adviser involved in international supplies. It is also an interesting read for students of the tax technical side of such supplies.

We have a strong global structure of skilled advisers which are able to assist if you have any queries.

VAT EORI – What is it? Do I need one?

By   April 19, 2017

What is an EORI?

EORI is an acronym for Economic Operator Registration & Identification.

An EORI number is assigned to importers and exporters by HMRC, and is used in the process of customs entry declarations and customs clearance for both import and export shipments travelling to or from the EU and countries outside the EU.

What is the EORI number for?

An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.

Who needs an EORI number?

You will require an EORI number if you are planning to import or export goods with countries outside the EU.  Also, you may need an EORI number to trade with these countries in Europe: Andorra, Bosnia and Herzegovina, Gibraltar, Guernsey, Iceland, Jersey, Liechtenstein, Macedonia, Moldova, Norway, Switzerland.

Format of the EORI number

VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.

How do I apply for an EORI Number?

Non VAT registered companies can apply using this link – FORM C220

VAT registered companies can apply using this link – FORM C220A

Once completed, your form should be emailed to:  eori@hmrc.gsi.gov.uk

How long will my EORI application take?

EORI applications take up to three working days to process.

Please contact us if you have any issues with importing or exporting.

VAT legislation – relationship between EU and UK law. A guide

By   April 10, 2017

How does the UK system fit with EU legislation?

Further to my recent article on the legal impact of The Great Repeal Bill and Article 50 here I thought it would be a good idea to take a step back and look at the background. We now know that on the day the UK leaves the EU the following rules will still apply and that there will be no immediate changes to the status quo. After Brexit there is likely to be a review of the VAT position, but we expect any changes to the system to be subtle at first with any significant changes (if any) being made over a much longer period.

So where are we now?

As most people will know, UK domestic VAT law is derived from EU legislation, but what is the actual relationship?

It is important to understand how both elements of legislation work in cases of dispute with HMRC as it often provides additional ammunition.

History

Most Member States already had a system of VAT before joining the EU but for some countries VAT had to be introduced together with membership of the EU.

When the UK joined the EU in 1972 it replaced two taxes; purchase tax and selective employment tax with VAT.

In 1977, the Council of the European Communities sought to harmonise the national VAT systems of its Member States by issuing the Sixth Directive to provide a uniform basis of assessment and replacing the Second Directive promulgated in 1967.

Council Directive 2006/112/EC (the VAT Directive) sets out the infrastructure for a common VAT system which each Member State is required to implement by means of its own domestic legislation. This important Directive codifies into one piece of legislation all the amendments to the original Sixth Directive, thus clarifying EU VAT legislation currently in force.

Intention

The aim of the VAT Directive is to harmonise the indirect tax within the EU, and it specifies that VAT rates must be within a certain range. The basic aims are:

  • Harmonisation of VAT law
  • Harmonisation of content and layout of the VAT declaration
  • Regulation of; accounting, providing a common legal accounting framework
  • Common framework for detailed description of invoices and receipts
  • Regulation of accounts payable
  • Regulation of accounts receivable
  • Standard definition of national accountancy and administrative terms

EU Statements

There are four types of EU statements:

  • Regulations – Are binding in their entirety and have general effect to all EU Member States. They are directly applicable in the UK legal system
  • Directives – Are binding as to result and their general effect is specific to named EU countries. The form and methods of compliance are left to the addressees.
  • Decisions – Are binding in their entirety and are specific to an EU country, commercial enterprise or private individual.
  • Recommendations and Opinions – Are not binding and are directed to specific subjects on which the Council’s or Commission’s advice has been sought.

EU Legislation as part of UK Legislation

EU law is made effective for UK legislation via European Communities Act 1972 section 2. The effects of EU law as regards UK VAT legislation is summarised as follows.

Direct effect

The Court of Justice has held “wherever the provisions of a directive appear … to be unconditional and sufficiently precise, those provisions may … be relied upon as against any national provision which is incompatible with the directive insofar as the provisions define rights which individuals are able to assert against the state” – Becker.  Also, in UFD Ltd it was stated that “in all appeals involving issues of liability, the Tribunal should consider the relevant provisions of the Council directives to ensure that the provisions of the UK legislation are consistent therewith”.

Primacy of EU Directives over UK legislation

A UK court which is to apply provisions of EU law is under a duty to give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation.

Interpretation of UK law

If UK VAT legislation is unclear or ambiguous, Tribunals are “entitled to have regard to the provisions of the relevant EU Directive in order to assist in resolving any ambiguity in the construction of the provisions under consideration’ (English-Speaking Union of the Commonwealth).

Legal principles

In implementing the common VAT structure, domestic legislation is required to recognise certain legal principles.

Examples of some of these are the principle of:

  • Equality of citizens
  • Subsidiarity and proportionality
  • Non-discrimination on grounds of nationality
  • Fiscal neutrality
  • Legal certainty and the protection of legitimate expectations.

Practical application for most taxpayers

Practically, a result of the above is that taxpayers are regularly able to recover VAT (plus interest) paid to HMRC in error in cases where the UK domestic legislation has not implemented EU law correctly.  However, HMRC has no right to recovery where VAT has been under-collected as a result of inappropriate implementation of the EU legislation.

VAT Legal impact of The Great Repeal Bill and Article 50

By   April 3, 2017

Changes to VAT on the day the UK leaves the EU – details of new White Paper

There has been significant confusion and differing views over how the UK would treat existing CJEU case law and its impact on the UK legislation when the UK leaves the EU.

Welcome certainty and clarity has been provided by the publication of a White Paper in respect The Great Repeal Bill (GRB).  Full details of the GRB here

Background

The European Communities Act 1972 (ECA) gives effect in UK law to the EU treaties. It incorporates EU law into the UK domestic legal order and provides for the supremacy of EU law. It also requires UK courts to follow the rulings of the Court of Justice of the European Union (CJEU). Some EU law applies directly without the need for specific domestic implementing legislation, while other parts of EU law need to be implemented in the UK through domestic legislation. As explained in the White Paper, domestic legislation other than the ECA also gives effect to some of the UK’s obligations under EU law. The government states that “…it is important to repeal the ECA to ensure there is maximum clarity as to the law that applies in the UK, and to reflect the fact that following the UK’s exit from the EU it will be UK law, not EU law, that is supreme.” The GRB will repeal the ECA on the day we leave the EU.

Overview

The main point stressed in the White Paper is that “The same rules and laws will apply on the day after exit as on the day before. It will then be for democratically elected representatives in the UK to decide on any changes to that law, after full scrutiny and proper debate” and “This Bill will, wherever practical and appropriate, convert EU law into UK law from the day we leave so that we can make the right decisions in the national interest at a time that we choose.”

 The intention is that the GRB will do three things:

  • It will repeal the ECA and return power to UK institutions.
  • The Bill will convert EU law as it stands at the moment of exit into UK law before we leave the EU. This allows businesses to continue operating knowing the rules have not changed significantly overnight, and provides fairness to individuals, whose rights and obligations will not be subject to sudden change. It also ensures that it will be up to the UK Parliament (and, where appropriate, the devolved legislatures) to amend, repeal or improve any piece of EU law (once it has been brought into UK law) at the appropriate time once we have left the EU.
  • The Bill will create powers to make secondary legislation. This will enable corrections to be made to the laws that would otherwise no longer operate appropriately once we have left the EU, so that our legal system continues to function correctly outside the EU, and will also enable domestic law once we have left the EU to reflect the content of any withdrawal agreement under Article 50.

This means that case law precedent from the CJEU will continue to apply (for a time at least). Any uncertainties/disagreements over the meaning of UK law after the UK leaves the EC that has been derived from EU cases will be decided by reference to the CJEU case law as it exists on the day the UK leaves. As a consequence, the GRB is likely to give CJEU case law similar precedent status to the UK Supreme Court.  The result is that Tribunals (and other court cases) will be heard in a similar way as they are now and both sides may continue to rely on case law as they have up to this point.  Any changes to the VAT legislation, if any, may then be made at a more leisurely pace while providing certainty while this is done.

Customs

There will also be changes to the current UK Customs regime as a consequence of the UK leaving the Single Market. The Customs Declaration Services (CDS) programme is intended to replace the existing system for handling import and export freight (CHIEF) from January 2019. Now that the Government has made a decision to leave the EU customs union, there is concern that this project is in place on time. A letter from the Treasury Select Committee states that “even modest delays, there is potential for major disruption to trade and economic activity”.

There are still a lot of uncertainties which will not be dealt with until we know the terms of the UK leaving and we will try to report these as soon as we have any information. Please subscribe to our free monthly e-newsletter to keep up to date on this, and other VAT developments. Simply email us at marcus.ward@consultant.com