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VAT rules shake up will see more overseas companies having to register for VAT

Companies that have historically been allowed to reclaim VAT on goods they are importing, despite the fact that they do not own the goods, will no longer be allowed to do so.

HM Revenue & Customs (HMRC) is attacking situations where businesses, such as ‘toll manufacturers’ (who import raw materials or semi-finished goods in order to undertake a process on behalf of their overseas customers) and overseas businesses that sell on goods just before importing them into the UK, have for many years been acting as ‘importer of record’ on the UK import declarations and subsequently recovered the import VAT via their VAT returns.

HMRC are now saying that only the owners of imported goods should be entitled to claim the import VAT, despite their published guidance stating that the goods only need to be imported ‘for the purpose of’ the importer’s business.

Alan Pearce, VAT partner at Blick Rothenberg said, “This is a major change in HMRC’s practice of allowing import VAT to be recovered by entities that have historically not held title to the goods being imported. It could impact a significant number of businesses that have relied on HMRC’s previous policy and could result in additional VAT registrations being required or changes to the ownership of goods having to be made at or prior to importation.”

Businesses will need to apply HMRC's revised procedures or face VAT claims being rejected.

Alan added, “HMRC has categorically stated that only the owner of the goods should be the importer of record for the purposes of reclaiming the import VAT, either via its UK VAT registration or via the VAT refund procedure for traders established outside the EU. This could also impact other overseas businesses that have used UK third party agents or subsidiaries which do not take title to the goods but take responsibility for the onward sale or disposal of the goods and have acted as importer of record on behalf of the owner.”

HMRC has updated its internal guidance and has released Revenue and Customs Brief 2/2019 explaining the correct procedure for recovering import VAT paid as input tax.

Alan said, “As HMRC accepts that its previous guidance was not clear, it will therefore not pursue retrospective cases where the VAT could have been fully recovered by the owner of the goods at the time of importation, provided there is no risk of duplicated claims. However, there is some doubt over whether HMRC’s revised rules are contrary to EU legislation. This change may therefore be open to challenge, but as we stand at the moment, with effect from 15 July 2019 businesses will need to apply HMRC’s revised procedures or face VAT claims being rejected.”

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