Just as the UK prepares for a fundamental change in the way it manages its international trade in goods, a recent HMRC policy paper limits some organisations’ ability to act as importer and thus recover import VAT.
Currently, the UK’s membership of the EU customs union and inclusion in the EU VAT area means there is a relatively straightforward process. Before goods enter the UK an importer is identified to handle the import VAT and customs duty responsibilities and settle any amounts due . In most cases, the organisation identified as the importer is a UK business that is VAT registered and entitled to recover some or all of the import VAT paid at the border provided it retains evidence that it has paid import VAT. This evidence is a form generated by HMRC called a C79.
The updated policy paper, published on 11 April , states that HMRC has become aware of situations in which import VAT has been incorrectly recovered by ‘non-owners’. The non-owners initially identified were toll operators acting on behalf of foreign clients. These businesses typically receive raw materials from abroad on behalf of their clients and process them, before redistributing the processed products in the UK or abroad. Critically these toll operators do not take ownership of the goods which they are responsible for processing.
In HMRC’s view, the only person that can act as importer for VAT purposes (and thus recover import VAT) is the owner of the goods at the point of import. This means that toll operators acting on behalf of their client will be refused the right to recover import VAT from 15 July 2019. Instead, foreign businesses trading with UK toll operators may either try to recover VAT from HMRC using what is generally referred to as the Thirteenth Directive mechanism or, in some cases, may recover it by registering for UK VAT. Needless to say, neither option will be particularly attractive.
While toll operators and their customers will need to think very carefully about this change, HMRC’s brief goes on to say that other organisations that identify themselves as importers for VAT purposes may also be affected. Some UK organisations purchasing goods from abroad sell the goods, before they land in the UK, to their customer. This means that when the goods land in the UK the owner of the goods is not the same party that owned the goods when they left the country of origin. HMRC’s brief makes it clear that even if a business owned goods before import into the UK, it should not be acting as importer for VAT purposes (and therefore is not entitled to recover import VAT).
This change in policy impacts a number of long-established working practices that are designed to reduce the VAT compliance burden on foreign businesses wishing to trade with UK suppliers. Careful consideration of this new policy is needed. In particular, it appears possible that the importer for VAT purposes may be different to the definition of importer for other import entry purposes (including customs duty and/or regulatory purposes ).
Perversely, as the UK works to reduce the friction of cross-border trade in goods, this policy announcement could cause significant disruption.