This Guidance provides examples to help with the completion of declarations on the Customs Declarations Service for exports. It has been updated with the addition of a standard pre-lodged export declaration document.
Category Archives: VAT Exports
VAT registration HMRC update
HMRC has updated VAT Notice 700/1 – Who should register for VAT. The publication explains when a business must register for VAT, and how to do it.
The changes are to para 2.7 – Specified Supplies which sets out what needs to be included during the application process when describing business activities.
Businesses affected
Those that supply; finance, insurance services, or investment gold to customers in countries outside the UK, or make supplies of insurance or finance services which are directly linked to the export of goods outside the UK.
Specified Supplies
These are supplies which would be exempt from VAT if they were made in the UK, but are treated as taxable if made outside the UK.
Benefit to business
A business making Specified Supplies may register for VAT on a voluntary basis and claim UK input tax incurred in making those supplies. We strongly recommend that all businesses in the above categories consider registering in the UK.
The amendment
If a business is registering because it makes Specified Supplies, it must ensure that it clearly states ‘SPECIFIED SUPPLIES’ in the free-text box when asked to describe the business activities during the application process. Failure to do this will likely cause delays and create additional HMRC queries.
VAT: Evidence for exports. The H Ripley case
Latest from the courts
In the H Ripley & Co Limited First Tier Tribunal (FTT) case the issue was whether the appellant had satisfactory evidence to support the zero rating of the export of goods (scrap metal).
Background
HMRC denied zero rating on the basis that the appellant did not provide satisfactory evidence to support the fact that the scrap metal was removed from the UK.
The requirements are set out in VAT Notice 725 para 5 and acceptable documentary evidence may include:
- the customer’s order – including customer’s name and delivery address
- inter-company correspondence
- copy sales invoice
- advice note
- packing list
- commercial transport documents from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee
- details of insurance or freight charges
- bank statements as evidence of payment
- receipted copy of the consignment note as evidence of receipt of goods abroad
- a signed CMR document or note
- a bill of lading
- an airfreight invoice
- an invoice from the carrier of the goods
- official documents issued by a public authority, such as a notary, confirming the arrival of the goods
- any other documents relevant to the removal of the goods in question which you would normally get in the course of business
or a combination of the above.
HMRC advised the appellant that it had received an information request from the Belgian tax authorities in respect of certain transactions and consequently, HMRC required information on the company’s documents in connection with the supplies. On receipt of the information HMRC concluded that the evidence was insufficient to support zero-rating so the sales were treated as standard rated and the appellant’s repayment claim was reduced to reflect this.
In these circumstances the burden of proof is on the appellant to show that it has satisfied the conditions set out in Notice 725 to zero-rate its supplies and provide documentation to show that the goods were removed from the UK.
Decision
The court noted that it was not HMRC’s position that supplementary evidence could not be provided post the required three-months period but that it was entitled to decline the additional evidence when it was provided some 18 to 30 months after the three-month period. It was clear that the evidence of removal must be obtained within three months and not that the valid evidence is brought into existence within the three-month time limit and obtained at some future date.
Notice 725 sets out the conditions which attach to the entitlement to zero-rate supplies. The FTT considered it to be clear from paragraph 4.3 and 4.4 (which have the force of law) that the onus is on the exporter company claiming zero-rating to gather sufficient evidence of removal within three months of the date of the supply. If it does not do so, it is not entitled to zero-rate the supplies.
Specifically, the court considered:
- Sales Invoices – did not provide clear evidence that the goods were removed from the UK. Despite the invoices confirming the sale of scrap metal to a Belgium registered company it did not follow that the address of the purchaser is the same address as the destination that the goods were sent to.
- Bank Statements – simply provided proof of payment they did not confirm who received the goods nor where the goods were delivered.
- Weighbridge Tickets – merely confirm a consignment of scrap metal was sold to a Belgium based company and the goods were collected by a UK registered vehicle.
- CMRs – none of the CMRs were fully completed by the haulier and signed by the receiving consignee.
- P&O Boarding Cards –a taxpayer must have in its possession valid evidence of export within three months from the time of supply. The boarding cards were not provided to HMRC until 30 May 2018, some 18 to 30 months after the disputed consignments took place. It was not disproportionate for HMRC to state that the time limit for obtaining valid evidence of removal was three months and that the substantive requirements of Notice 725 had not been met. In any event, the court did not accept that the boarding cards evidence the exports of the scrap metal; none of the reference numbers on the boarding card match those used in any of the other documents and none of the lead names on the boarding cards match any of the other names in any other document. The boarding cards do not have any identifying features such that they may be matched with any of the disputed consignments.
- E-mails and WhatsApp messages –none of the messages evidence that the loads were exported. At best they evidence a request from the buyer to a carrier to collect goods from the supplier’s yard and the WhatsApp messages were silent on whether the loads were exported from the UK.
The appeal was dismissed, and the assessments were upheld because none of the documents either individually or taken as a whole, were sufficient evidence to support zero-rating.
Commentary
Yet another case illustrating the importance of insuring correct documentation is held. It is not sufficient that goods leave the UK, but the detailed evidence requirements must always be met.
VAT: Updated guidance on zero-rated exports
has been updated. The Notice sets out how and when a business can apply zero-rate exported goods.
Information on the types of fuel that the Extra Statutory Concession 9.2 does not apply to, and when you cannot zero rate the export of a motor vehicle has been updated.
And: Information on evidence relating to zero rating and direct exports – paragraphs 6.1, 6.5, 7.3 and 7.4.
VAT: New rules for registration and reporting in the EU from 1 January 2025
EU Member States have agreed to extend similar VAT registration thresholds utilised by domestic businesses to EU non-resident taxpayers.
VAT scheme for Small Businesses
New simplification rules will open the VAT exemption to small businesses established in other member states and help reduce VAT compliance costs. The new regime should reduce red tape and administrative burdens for SMEs and create a level playing field for businesses regardless of where they are established in the EU. The new VAT scheme for SMEs will apply from 1 January 2025.
The new scheme
Current rules on the exemption of supplies under a certain threshold:
- Member States are allowed to exempt supplies by small enterprises with an annual turnover not exceeding a given threshold, different in each Member State.
- Small enterprises not established in a certain Member State have, however, no access to such an exemption.
New rules on the exemption of supplies under a certain threshold
- Member States will be allowed to continue exempting small businesses with an annual turnover not exceeding a given threshold, which cannot be higher than € 85,000 (maximum exemption threshold).
- The new rules will open the exemption to small enterprises established in other Member States than the one in which the VAT is due. The exemption will apply if the turnover in Member State where the SME is not established is below the national threshold and if the annual turnover in all of the EU is below €100,000. This is a safeguard threshold preventing companies with large turnover to benefit from the SME exemption in other Member States. For this purpose, SMEs will be able to use the single registration window in their own Member State.
The new rules will provide exempt SMEs with simplifications in terms of registration and reporting. These rules should reduce the overall VAT compliance costs for SMEs by up to 18% per year.
VAT: Land related services
Whether a service is “related to land” is important because there are distinct rules for this type of supply compared to the General Rule. The place of supply (POS) of land related services is where the land is located, regardless of where the supplier or recipient belong.
The rule applies only to services which relate directly to a specific site of land. This means a service where the land is a central and essential part of the service or where the service is intended to legally or physically alter a property.
It does not apply if a supply of services has only an indirect connection with land, or if the land related service is only an incidental component of a more comprehensive supply of services.
What is land?
For the purpose of determining the POS, land (also called immoveable property in legislation) means:
- a specific part of the earth, on, above or below its surface
- a building or structure fixed to, or in, the ground above or below sea level which cannot be easily dismantled or moved
- an item making up part of a building without which it is incomplete (such as doors, windows, roofs, staircases and lifts)
- items of equipment or machinery permanently installed in a building which cannot be moved without destroying or altering the building
What services directly relate to land?
HMRC provide the following examples:
- construction or demolition of a building or permanent structure
- surveying and assessing property
- valuing property
- providing accommodation in hotels, holiday camps, camping sites or timeshare accommodation
- maintenance, renovation and repair of a building
- property management services carried out on behalf of the owner
- arranging the sale or lease of land or property
- drawing up of plans for a building or part of a building designated for a particular site
- services relating to the obtaining of planning consent for a specific site
- on-site security services
- agricultural work on land
- installation and assembly of machines which, when installed, will form a fixture of the property that cannot be easily dismantled or moved
- the granting of rights to use all or part of a property (such as fishing or hunting rights and access to airport lounges)
- legal services such as conveyancing and drawing up of contracts of sale or leases, including title searches and other due diligence on a specific property
- bridge or tunnel toll fees
- the supply of space for the use of advertising billboards
- the supply of plant and equipment together with an operator
- the supply of specific stand space at an exhibition or fair without any related services
What services are only indirectly related to land?
The following HMRC examples are not deemed to be land related services:
- management of a property investment portfolio
- drawing up of plans for a building that do not relate to a particular site
- arranging the supply of hotel accommodation or similar services
- installation, assembly, repair or maintenance of machines or equipment which are not, and do not become, part of the building
- accountancy or tax advice, even when that relates to tax on rental income
- the supply of storage of goods in property without a right to a specific area for the exclusive use of the customer
- advertising services including those that involve the use of a billboard
- marketing, photography and public relations
- the supply of equipment with an operator, where it can be shown that the supplier has no responsibility for the performance of the work
- general legal advice on contractual terms
- legal services connected with fund raising for property acquisitions or in connection with the sale of shares in a company or units in a unit trust which owns land
- stand space at an exhibition or conference when supplied as part of a package with related services, eg; design, security, power, telecommunications, etc.
These examples are mainly derived from case law and the department’s understanding of the legislation and they are not exhaustive.
The Reverse Charge
If an overseas supplier provides land related services in GB, the POS is GB and the reverse charge applies if the recipient is GB VAT registered.
If a GB supplier provides services directly related to land where the land is located outside GB, the POS is not GB. This means that there is a supply in another country. VAT rules in different countries vary (even across the EU) – some countries use the reverse charge mechanism, but others require the GB supplier to VAT register in the country of the POS (where the land is physically located).
VAT: B2B and B2C – The distinction and importance
A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.
Status of the customer:
- B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
- B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.
To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.
- If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
- If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.
A supplier needs to identify where his customer belongs in order to establish the place of supply.
VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.
VAT: Place of supply – The Sports Invest case
Latest from the courts
In the First-Tier Tribunal case of Sports Invest UK Ltd the issue was the place of supply (POS) of a football agent’s services (commission received for a player’s transfer).
The POS is often complex from a VAT perspective and depends on the place of belonging (POB) of the supplier and the recipient of the supply. These rules determine if VAT is charged, where VAT is charged and the rate of VAT applicable, additionally, they may impose requirements to register for VAT in different jurisdictions.
Background
Sports Invest was a football agent based in the UK. It received fees in respect of negotiating the transfer of a player: João Mário from a Portuguese club: Sporting Lisbon to an Italian club: Internazionale (Inter Milan). The appellant signed a representation contract with the player which entitled it to commission, and a separate agreement with Inter Milan entitling it to a fee because the player was permanently transferred.
The Issues
To whom did Sports Invest make a supply – club or player? What was the supply? Was there one or two separate supplies? What was the POS?
As appears normal for transactions in the world of football the contractual arrangements were complex, but, in essence as a matter of commercial and economic reality, Sports Invest had agreed the commission with the player in case it was excluded from the deal. However, this did not occur, and the deal was concluded as anticipated. Inter Milan paid The Appellant’s fee in full, but did this affect the agreement between Sports Invest and the player? That is, as HMRC contended, did Inter Milan pay Sports Invest on the player’s behalf (third party consideration) such that there were two supplies; one to the player and one to the cub?
The FTT stated that there was no suggestion that the contracts were “sham documents”.
VAT Liability
The arrangements mattered, as pre-Brexit, a supply of services by a business with a POB in the UK to an individual (B2C) in another EU Member State would have been subject to UK VAT; the POS being where the supplier belonged. HMRC assessed for an element of the fee that it saw related to the supply to the player. The remainder of the fee paid by the club was accepted to be consideration for a UK VAT free supply by the agent to the club (B2B).
Decision
The court found that there was one single supply by The Appellant to Inter Milan. This being the case, the supply was B2B and the POS was where the recipient belonged and so that the entire supply was UK VAT free. There was no (UK) supply to the individual player as that agreement was superseded by the contractual arrangements which were actually put in place and the player owed the agent nothing as the potential payment under that contract was waived.
The appeal against the assessment was upheld.
Commentary
The court’s decision appears to be logical as the supply was to the club who were receiving “something” (the employment contract with the player) and paying for it. The other “safeguarding” agreement appeared to be simple good commercial practice and was ultimately “not required”. This case highlights the often complex issues of; establishing the nature of transactions, the identity of the recipient(s), agency arrangements, the POS and the legal, commercial and economic reality of contracts.
VAT – What records must be kept by a business?
I thought that it may be useful to round-up all the record-keeping requirements in one place and focus on what HMRC want to see. It is always good practice to carry out an ongoing review a business’ records to ensure that they comply with the rules.
General requirements
Every taxable person must keep such records as HMRC may require. Specifically, every taxable person must, for the purposes of accounting for VAT, keep the following records:
- business and accounting records
- VAT account
- copies of all VAT invoices issued
- VAT invoices received
- certificates issued under provisions relating to fiscal or other warehouse regimes
- copy documentation issued, and documentation received, relating to the transfer, dispatch or transport of goods overseas and/or imported
- credit notes, debit notes and other documents which evidence an increase or decrease in consideration that are received, and copies of such documents issued
- copy of any self-billing agreement to which the business is a party
- where the business is the customer party to a self-billing agreement, the name, address and VAT registration number of each supplier with whom the business has entered into a self-billing agreement
Additionally
HMRC may supplement the above provisions by a Notice published by them for that purpose. They supplement the statutory requirements and have legal force.
Business records include, in addition to specific items listed above, orders and delivery notes, relevant business correspondence, purchases and sales books, cash books and other account books, records of daily takings such as till rolls, annual accounts, including trading and profit and loss accounts and bank statements and paying-in slips.
Unless the business mainly involves the supply of goods and services direct to the public and less detailed VAT invoices are issued, all VAT invoices must also be retained. Cash and carry wholesalers must keep all till rolls and product code lists.
Records must be kept of all taxable goods and services received or supplied in the course of business (standard and zero-rated), together with any exempt supplies, gifts or loans of goods, taxable self-supplies and any goods acquired or produced in the course of business which are put to private or other non-business use.
All records must be kept up to date and be in sufficient detail to allow calculation of VAT. They do not have to be kept in any set way but must be in a form which will enable HMRC officers to check easily the figures on the VAT return. Records must be readily available to HMRC officers on request. If a taxable person has more than one place of business, a list of all branches must be kept at the principal place of business.
Comprehensive records
In addition, we always advise businesses to retain full information of certain calculations such as; partial exemption, the Capital Goods Scheme, margin schemes, TOMS, business/non-business, mileage and subsistence claims, promotional schemes, vouchers, discounts, location of overseas customers, and OSS, amongst other records. The aim is to ensure that any inspector is satisfied with the records and that any information required is readily available. This avoids delays, misunderstandings and unnecessary enquiries which may lead to assessments and penalties.
If you have any doubts that your business records are sufficient, please contact us.
VAT: New guidance on zero rating exports
HMRC has published updated guidance on the evidence required to zero rate the export of goods. VAT Notice 703 sets out the following changes on the documentation which is required for proof of export:
- Para 6.1 – For VAT zero rating purposes a business must produce official evidence or commercial evidence. Both types generally have equal weight but, if the commercial evidence is found to be lacking sufficient detail, a business will be expected to provide official evidence. An exporter must also provide supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported. If the evidence of export provided is found to be unsatisfactory, VAT zero rating will not be allowed and the supplier of the goods will be liable to account for the VAT at the appropriate UK rate.
- Para 6.5 – What must be shown on export evidence (extract from the Notice)
“An accurate description of the exported goods and quantities are required, for example ‘2000 mobile phones (Make ABC and Model Number XYZ2000), value £50,000’.
If the evidence is found to be unsatisfactory you as the supplier will become liable for the VAT due.
If you’ve described goods inaccurately on an export declaration you may be liable for a customs penalty.
The rest of this paragraph has force of law.
The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify:
-
- the supplier
- the consignor (where different from the supplier)
- the customer
- an accurate and full description of the goods including quantities
- an accurate and consistent value of the good
- the export destination, and
- the mode of transport and route of the export movement
Vague descriptions of good, quantities or values are not acceptable. An accurate value must be shown and not excluded or replaced by a lower or higher amount”.
- Paras 7.3 and 7.4 on merchandise in baggage and direct exports of personal goods in accompanied baggage have also be amended.
Overview
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.