Further to my article on the new changes from next year, HMRC has published information on the rules of origin for trade between the UK and EU.
The Bulletin covers the rules of origin and the forthcoming changes to the requirement for supplier declarations to support proof of origin.
Further to my article on new procedures, HMRC has issued a reminder of customs changes that come into effect on 1 January 2022.
It is now less than a month until full controls are introduced.
The Changes
Businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls Most importers will have to make declarations and pay relevant tariffs at the point of import.
Ports and other border locations will be required to control goods moving Great Britain and the EU. This means that unless goods have a valid declaration and have received customs clearance, they will not be able to be released into circulation, and in most cases will not be able to leave the port. From 1 January 2022, goods may be directed to an Inland Border Facility for documentary or physical checks if these checks cannot be done at the border.
The UK’s deal called the Trade and Cooperation Agreement (TCA), means that the goods imported or exported may benefit from a reduced rate of Customs Duty (tariff preference). To use this a business will need proof that goods which are:
. imported from the EU originate there
. exported to the EU originate in the UK
Commodity codes are used worldwide to classify goods that are imported and exported. They are standardised up to six digits and reviewed by the World Customs Organisation every five years. Following the end of the latest review, the UK codes will be changing on 1 January 2022. HMRC guidance is available on finding commodity codes for imports into or exports out of the UK which includes information on using the ‘Trade Tariff Tool’ to find the correct commodity codes.
A VAT registered importer is able to continue to use Postponed VAT Accounting (PVA) on all customs declarations that are liable to import VAT (including supplementary declarations).
Further changes from 1 July 2022
The following changes will be introduced from July 2022:
Businesses must be prepared for these changes and I recommend that an experienced representative is used.
From 1 January 2022 the rules for selling to, and buying from, the EU will change.
HMRC have issued information about these changes.
Broadly, from 1 January 2022, businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls rules that have applied during 2021. Most businesses will have to make declarations and pay relevant tariffs at the point of import. However, see details of Postponed Accounting.
Please also see a publication issued by the Cabinet Office which includes a Policy Paper on The Border Operating Model.
Further to my article on apportionment valuation and case review here and Transfer Pricing valuation I thought it useful to consider HMRC’s internal guidance on its approach to valuation.
Sometimes a single monetary consideration may represent payment for two or more supplies at different VAT rates. In such cases, a business is required to allocate a “fair proportion” of the total payment to each of the supplies. This requirement is set out at in The VAT Act 1994, Section 19(4).
“Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.”
Although this section requires an apportionment of the consideration to be performed, it does not prescribe the methods by which this is to be achieved. The most common methods are based upon the costs incurred in making the supplies or the usual selling prices of the supplies.
Examples of methods that have been found to be of general application are contained in VAT Notice 700 para 8. A business is not obliged to adopt any of these suggested methods, and HMRC may accept alternative proposals provided that they achieve a fair and reasonable result that can be supported by valid calculation.
Some sectors have special methods called margin schemes to determine apportionment of the monetary consideration. Details of these found in their notices and guidance. The schemes include:
Basics
Before it is possible to perform an apportionment calculation, there are four basic questions that need to be addressed to determine whether an apportionment is appropriate and if so, what supplies it relates to.
The issue of whether there is a single or multiple supply has created problems from the outset of the tax. The volume of case law illustrates that each decision is based on the facts of each case and there cannot be a one-size fits all approach to this issue. The most important and recent cases are here:
Metropolitan International Schools
General Healthcare Group Limited
HMRC will stop issuing payable orders to overseas non-established taxpayers (NETP – taxpayers who are registered for UK VAT but do not have a business address here). The system automatically issued a payable order if a NETP was due a repayment.
Background
HMRC has received notifications and complaints from taxpayers advising that they can no longer cash their payable orders in their country or their bank. The impact of Brexit and COVID19 has seen an increase in banks/countries no longer accepting payable orders. Consequently, HMRC were sending repayments to NETPs with the knowledge they may not be able to cash them.
New Gform
To address this issue HMRC has created a Gform that will enable NETPs to send their bank account information in order that the issue of a payable order can be avoided and a Clearing House Automated Payment System (CHAPS) payment made instead.
Access
HMRC systems do not currently have CHAPS functionality or the ability to store overseas bank information. However, once a NETP has completed the form, which is accessed via the Government Gateway HMRC will set a lock on the taxpayer’s record to prevent the payable order being automatically issued. NETPs will then receive their repayments directly into their bank account without the need to visit their bank to cash a payable order.
Information required
Information requested on the Gform will include:
Orange squash, petrol, ice cream, and poodle food are rated as “luxuries”, while caviar, top shelf magazines, and labrador food are not.
There were no significant announcements on VAT in the budget.
That is all!
Latest from the courts
In the First Tier Tribunal (FTT) case of Andrew Ellis and Jane Bromley [2021] TC08277, the issue was whether a person constructing their own house can make more than one claim for VAT incurred.
Background
The DIY Housebuilder’s Scheme enables a DIY housebuilder to recover VAT incurred on the construction of a house in which the constructor will live. Details here.
In this case, the specific issue was whether, despite the HMRC guidance notes on the scheme claim form explicitly stating that only one claim can be made, whether two claims may be submitted and paid by the respondent.
The appellant constructed a house over a period of five years (he was a jobbing builder and the work was generally only undertaken at weekends and holidays). To aid cash flow, an initial claim was made, followed by a second two years later.
The relevant legislation is The VAT Act 1994 section 35.
Decision
The appeal was allowed. The FTT found that HMRC’s rule that only one claim could be made under the DIY housebuilder’s scheme was ultra vires and that multiple claims should be permitted.
The judge stated that “…there is no express indication that only one claim may be made. Like many provisions, section 35 VATA is drafted in the singular. Drafting in the singular is an established technique to assist in clarity and to enable the proposal to be dealt with succinctly. As there is no express indication to the contrary in section 35 VATA, section 6 Interpretation Act 1978 applies to confirm that the reference to “a claim” in section 35 VATA must be read as including “claims”.
Commentary
This is good news for claimants who often must wait a number of years for a house to be built and therefore carry the VAT cost until the end of the project.
This case presumably means that it is possible to make claims as the project progresses and there is no need to wait until completion.
We await comment on this case from HMRC, but it is hoped that clarification will be forthcoming on whether the result of this case will be accepted.
Further to the background to Freeports here I consider the latest developments.
What are Freeports?
Freeports are a specific port where normal tax and customs rules do not apply. Imports can enter with simplified customs documentation and without paying tariffs. Businesses operating inside designated areas in and around the port can manufacture goods using the imports, before exporting again without paying the tariff on the original imported goods (however, a tariff may be payable on the finished product when it reaches its final destination).
Freeports are similar to Free zones, or “Enterprise Zones” which are designated areas subject to a broad array of special regulatory requirements, tax breaks and Government support. The difference is that a Freeport is designed to specifically encourage businesses that import, process and then re-export goods, rather than more general business support.
Use
Goods brought into a Freeport are not subject to duties until they leave the port and enter the UK market. Additionally, if the goods are re-exported no duty is payable at all.
If raw materials are brought into a Freeport and processed into final goods before entering the UK market, duties will be paid on the final goods.
Background
If a business chooses to use a Freeport to import or export goods, it will be able to:
If goods are purchased in the UK, a business will continue to pay duties and import taxes using the normal UK rates.
Where are they?
The eight new Freeports are located at East Midlands Airport, Felixstowe and Harwich, the Humber region, Liverpool City Region, Plymouth, the Solent, the Thames, and Teesside.
Authorisation needed to use a Freeport
A business can apply to use the Freeport customs special procedure (a single authorisation combined with easier declaration requirements) to import goods for:
Declaring goods entering the UK Freeport
A form C21 is used to declare goods entering the UK. This can be done before the goods arrive in the UK or when the goods have arrived in the UK.
Declaring goods exported
A business will normally need to submit an exit summary declaration when goods are exported from the UK. When an exit summary declaration is not needed, a business will need to give an onward export notification to HMRC.
Disposing of goods which have been processed or repaired
When a business has finished processing or repairing goods, it must leave the Freeport and dispose of the goods by either:
VAT on supplies in the Freeport
A business will be able to zero rate supplies within a Freeport of:
When a zero rated VAT invoice is issued, it must include the reference “Free zone”.
Zero rating of goods applies if:
Benefits
The Government says that Freeports and free zones are intended to stimulate economic activity in their designated areas. Government backed economic studies have found the main advantage of Freeports is that they encourage imports by lowering duty and paperwork costs. Manufacturing businesses that are inside the Freeport can benefit from cheaper imported inputs in comparison to those outside the area. However, some commentators such as the UK Trade Policy Observatory (UKTPO) suggest that whilst some form of free zones could help with shaping export-oriented and place-based regional development programmes, it is important to ensure that trade is not simply diverted from elsewhere and that wider incentives are needed.
Evasion
Considering that the European Parliament has called for Freeports to be scrapped across the EU because of tax evasion and money laundering and that they are where trade can be conducted untaxed, and ownership can be concealed it is likely that there will be a certain degree of evasion. This a result of the lack of scrutiny on imports and means that high-value items, eg; art, can be bought and easily stored in Freeports without the kind of checks and controls they would normally face.
Summary
Any business that regularly imports and/or exports goods should consider if a Freeport will benefit their business model. This is particularly relevant if work is carried out on imported goods.
HMRC has issued two new documents which provide practical guidance for users of the One Stop Shop (OSS).
They cover how to pay the VAT due on an OSS return and how to use the service to submit an OSS VAT return if a business is registered for the OSS Union Scheme. A link has been added to allow a business to submit a OSS return directly.