One of our clients has just started to use a UK bonded warehouse to store their stock until it is sold to the end customer. The goods in the warehouse have not been purchased on a sale or return basis. If they remain unsold our client will have to complete the import into the UK and then dispose of them.
We have a difference of opinion in the office as to how to account for the VAT on the goods held in the warehouse. The import duty is not an issue as this will be accrued for as part of the reported stock value.
Some think we shouldn’t record the VAT in the accounts until the goods leave the warehouse but, there should be a note to the accounts indicating the value of VAT held in bond.
However, another view is the VAT should be recorded on the balance sheet. The thinking is show an Input VAT asset with the corresponding entry held against creditors. The idea is to replicate what would happen if the goods left the warehouse, i.e. pay the import agent and then get reimbursed from HMRC.
Has anybody dealt with this issue and if so, how?
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Not something I have experience of, but I thought the idea behind bonded warehouses was that they were a sort of limbo, whereby items entering the UK and going straight to a bonded warehouse were not deemed to have been imported/acquired until they left the warehouse (and even then, only if they weren't re-exported/dispatched). So surely you can't charge VAT to the accounts, as it hasn't been incurred yet.
No?
If the goods are held in a Bonded Warehouse they have not entered the UK/EU so no VAT or Excise Duty becomes payable until entered into free circulation. If the goods are sold in Bond there is no VAT or Excise Duty liability.
I am assuming you do mean a Bonded warehouse rather than a Customs Warehouse??