Around 50% of businesses do not recover VAT incurred overseas and there is an estimated $5 billion not reclaimed each year.
Category Archives: Border Control
VAT: New, important HMRC guidance for zero-rating exports
HMRC has updated its Notice 703 which explains the conditions for VAT zero-rating exports of goods. It is crucial for a business to have the correct documentation to evidence goods physically moving out of the UK.
Information on official evidence has been updated in paragraphs 6.2, 7.1 and 7.2 as follows:
- Para 6.2 Official evidence
Official evidence is an export declaration for the goods submitted to the Customs Declaration Service which has generated a departure confirmation. You will need the Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) of the declaration.
- Para 7.1 Air and sea freight
- If you are using commercial transport documents as proof of export for goods exported outside the UK or EU by:
- air — you must obtain and retain an authenticated basic master airway bill or house air waybill endorsed with the flight prefix and number, and the date and place of departure
- sea — you must keep one of the copies of the bill of lading or sea waybill along with a note of the export declaration Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) or, where a shipping company does not issue these, a certificate of shipment (certifying actual shipment) along with a note of the export MRN or DUCR, given by a responsible official of that company.
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7.2 Road freight
The international consignment note provides evidence of the identity of the contracting parties when goods are transferred by road. It is in 3 parts and is completed and signed by the sender of the goods, the carrier and the person receiving the goods. If the international consignment note is used as part of the evidence, it is important that the information is complete and all the details legible. Where the overseas customer arranges for the goods to be collected ex-works the international consignment note alone is not conclusive evidence that the goods in question have left the UK. Read paragraph 6.6 for additional evidence required when making an indirect export.
Where goods leave through a port using the Goods Vehicle Movement Service, you should retain the Goods Movement Reference of the vehicle for that journey.
Failure to produce the appropriate and accurate evidence will result in output tax being due on the relevant goods.
EU – Elimination of the threshold-based customs duty relief
The EU will abolish the rule that Customs Duty does not apply to low value goods (less than €150) entering the EU
It will impose a fixed Customs Duty of €3 from 1 July 2026, until completion of the EU data hub which is expected to be on 1 July 2028.
When operational, the data hub will enable Customs Duty to apply to all imported goods, regardless of value, on an ad valorem basis.
Updated Guidance on Zero-Rated VAT for UK Exported Goods and Customs Processes
HMRC has updated its guidance on applying zero-rated VAT to goods exported from the UK – VAT Notice 703.
The amendments reflect the latest legal requirements (the latest force of law) and customs processes as of 13 February 2026 and removes outdated customs terminology and guidance.
Summary
Goods exported from the UK can be zero‑rated provided they physically leave the UK and all HMRC conditions are met. Notice 703 sets out who can apply zero‑rating and the legal basis under the VAT Act 1994.
Conditions & time limits: Exporters must ensure goods are exported within specified time limits (generally within three months, but longer in some cases) and meet detailed conditions depending on whether the export is direct, indirect, or in special scenarios (eg; retailers, ships, aircraft).
Evidence & record‑keeping: Zero‑rating is only valid if acceptable proof of export is obtained and retained (such as customs declarations and commercial transport documents), with clear rules on records, customs systems, and compliance checks.
In order to zero-rate a supply, it is vitally important that exporters obtain the correct evidence that goods have physically left the UK and that all descriptions of the goods are accurate and satisfy HMRC requirements. There has been a significant amount of case law on export documentation (an example here) which illustrates that this is often an area of dispute.
Excise Duty: Your Christmas drink of choice, or perhaps not
A curious matter and one which brings into focus the drinking habits of people across the EU. Now, as those who know me will be aware, I am not adverse to a good single malt, nor a decent claret, but I do wonder sometimes where people draw the line.
Background
It transpires that in Lithuania people who choose not to drink, or cannot afford, even the cheapest alcoholic items have turned to drinking perfume and mouthwash which contain isopropyl alcohol. This has a similar effect on the human body to what most people would regard as being from more usual beer, wine or spirits etc. Sounds delicious eh?
Issue
The issue was whether these products where subject to Excise Duty, or, as the appellant contended, they were duty free as cosmetic products.
Decision
The AG found that isopropyl alcohol is almost unpalatable to most people. The fact that Bene Factum held out, advertised and marketed to people to drink the products did not affect the fact that the main purpose of the goods was for their use as cosmetics and mouthwash. What must be considered is Excise Duty depends on an objective classification to determine whether it is intended for human consumption. This classification is not affected by the fact that Bene Factum actively encouraged people to drink these products rather than use them for cosmetic purposes.
Consequently, the goods where not subject to Excise Duty. Good news for Lithuanian alcohol connoisseurs! It remains to see if the court follows this opinion, in most cases they do, but one never knows.
Commentary
If there is anybody out there who is getting ready for their Christmas party, looks at some cosmetic products and considers taking a swig, I make the following comments:
- Probably best to stick supermarket own brand booze if money is an issue
- I expect that these things taste absolutely terrible (although I have not sampled them)
- I tend to stick to things that are to be applied externally doing just that with them without ingestion
- If you can’t decide whether to gargle with something or drink it, I counsel spitting it out
- If these goods come to the UK, at least they will be even cheaper being duty free. I am not sure that is a good thing.
VAT Grouping: Protection of the Revenue
HMRC has updated VAT Notice 700/2 – Group and divisional registration.
The salient amendments are to the references to ‘protection of the revenue’ and ‘Revenue loss’.
VAT grouping is a facilitation measure by which two or more entities can be treated as a single taxable person (a single VAT registration) for VAT purposes. The measure was once restricted to “Bodies Corporate” which includes; companies of all types and limited liability partnerships. However, from 1 November 2019, grouping is additionally available for all entities, including; partnerships, sole traders and Trusts in certain cases.
HMRC has the vires to refuse an application for a VAT group, or remove a member if HMRC consider that it may lead to a VAT loss.
The Change
“The definition of ‘protection of the revenue’
Where this is considered necessary for the protection of the revenue, the VAT grouping legislation gives HMRC the power to:
- prevent a person joining a VAT group
- remove an existing member from a VAT group
We usually will not use our protection of the revenue powers if the revenue loss follows from the normal operation of grouping. If we feel that the revenue loss does not follow the normal operation of grouping, then we would consider using our protection of the revenue powers, such as:
- where we identify enhanced risks to the collection of revenue
- the use of VAT avoidance and distortion in the liability of the group’s supplies
In this context, ‘revenue loss’ means the VAT that is not charged when one company in a group sells to another company in the same group. This usually happens when one or more companies in the VAT group cannot reclaim all the VAT they pay because they make supplies that are exempt from VAT.
We will use our revenue protection powers if it looks like the main reason for VAT grouping someone is to ignore supplies from that company’s overseas branches to other members of the VAT group.
This applies whether that person is established in the UK or has a UK fixed establishment”.
VAT: New guidance on using postponed VAT accounting
HMRC has published (on 28 November 2025) a collection of new guidance on postponed VAT accounting (PVA).
The guidance covers what a business needs to do if it is using PVA to account for import VAT on its VAT returns.
The publication brings together all PVA guidance, giving detailed information about:
Who can claim import VAT? The TSI Instruments case
Latest from the courts
In the First-tier Tribunal (FTT) case of TSI Instruments Limited the issue was whether the appellant could claim import VAT when it was not the owner of the imported goods. The amount of VAT at stake was circa £8.5 million.
Background
TSI Instruments (TSI) imported scientific equipment owned by its customers for repair. The main activity of TSI in the UK is the service, repair and calibration of TSI Group goods which had previously been sold to customers around the world.
TSI is named as the importer and paid the charges made by the shipping company for dealing with the declaration and customs clearance formalities on behalf of TSI as well as paying the import VAT which it claimed.
Contentions
HMRC refused to repay the claims on the basis that only the entity with title to the goods is able to deduct the import VAT.
The appellant argued there is no requirement in the legislation that the importer should be the owner of the goods in order for import VAT to be credited. TSI asserted that, as long as the goods are imported for the purposes of its taxable business and it bears the costs of the import, the import VAT can be credited as input tax.
Decision
The FTT ruled that TSI was not entitled to claim input VAT credit for import VAT paid on goods it did not own, and the appeal was dismissed. Via both EU and UK VAT law, the right to deduct import VAT is restricted to the actual owner of the goods or the entity which has the right to dispose of the goods as their owner (or where the cost or value of the goods is reflected in the price of specific output transactions or in the price of goods and services supplied in the course of their economic activities). Since TSI did not own the goods, and their value was not included in the repair service price, the FTT ruled against TSI.
Commentary
This position could have been avoided by planning being put in place. TSI could have used Inward Processing Relief or the owner of the goods could have been the importer.
Legislation/HMRC guidance
VIT13300 – Import VAT may only be claimed by the owner of the goods who would be entitled to reclaim the import VAT either in accordance with s24 VATA 1994 (if registered for VAT in the UK) or under part XXI of the VAT Regulations 1995 (SI 1995/2518) if they are not registered for VAT in the UK, provided they satisfy the legislative conditions. For further information see Notice 723A.
HMRC published Revenue and Customs Briefs 2 (2019) and Brief 15 (2020) which restated HMRC’s long-standing policy that it is the owner of the imported goods who is entitled to recover the import VAT under current UK legislation. These Briefs clarify, but do not change, HMRC’s policy.
I have to charge myself VAT?!
VAT Basics
I have to charge myself VAT? How comes?!
Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!
Here are just some of the situations when you have to charge yourself VAT:
Purchasing services from abroad
These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.
Accounting for VAT and recovery of input tax.
Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must
- account for output tax, calculated on the full value of the supply received, in Box 1;
- (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
- include the full value of the supply in both Boxes 6 and 7.
Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.
Deregistration
Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.
Flat Rate Scheme
There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).
Domestic Reverse Charge (DRC)
The DRC makes supplies of standard or reduced rated construction services between construction or building businesses subject to the domestic DRC, which means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The RC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user, see below). More here.
Mobile telephones and computer chips
In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile telephones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.
Road fuel and power for private use
When business fuel is used privately, self-supply charges apply based on HMRC’s published road fuel scale charges, applied per vehicle per quarter.
Alternatively, businesses can maintain detailed mileage records for actual business use percentage calculations.
Land and buildings…. and motor cars
There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.
Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair. However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!
VAT & Import Duty
HMRC has updated its Guidance on How to claim a repayment of import duty and VAT if you have overpaid
It sets out how to check time limits and how to claim for importers, agents, freight forwarders or express operators. It also explains how to use the Customs Declaration Service or form C285 as an individual.
It covers:
- who can apply
- when to apply
- how to apply
- what you need — Customs Declaration Service
- apply online — Customs Declaration Service
- what you will need — C285 form
- apply online — C285 form
- what happens after the application