VAT help please.....!!!

VAT help please.....!!!

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A UK VAT registered company has purchased products from an EU member state using the UK VAT registration to ensure the purchase is zero rated. These products have not been received in the UK however have been received in a third EU member state where the UK company has a premises to store these products. The products are in part used in the formation of equipment built overseas (by third party subcontractors) however mostly the products are used in the research and development of software and IT equipment (again by third party subcontractors). The products therefore never come to the UK. The UK company sells a. equipment that is built overseas and b. consultancy services in relation to IT / software.

Hence my problem is how to complete the UK VAT return? Notice 725 the single market refers to the situation where the UK VAT registration number to ensure zero-rating is used but in fact the goods are sent to another member state - hence this appears to be legitimate and the guidance states that the purchase should be accounted for as an acquisition in both the UK and the member state in which the goods were received. However, although it is a technical aquisition, as the goods never physically arrive in the UK I am not sure whether the acquisition should be included in box 9 on the VAT return and EC sales list - the guidance doesn´t go into this much detail. If they are included, is this information not misleading as it implies that the goods have been physically received in the UK, which they weren´t.

In addition does the movement of the goods to the third member state count as a supply for VAT purposes under the transfer of own goods, or is the fact that they never arrive or leave the UK relevant?

If I look at it from a logical (?) point of view - if the goods need to be accounted for as an acqusition in the UK then perhaps we should also account for the goods as a supply under the "transfer of own goods" rules - like this way although the products go from A to C, we are squaring up the position in terms of physical movement by technically saying that they go from A to B and then B to C. However if I do this then I need to record that the products have entered the UK and then left the UK in boxes 8 and 9 - which technically they haven´t.

I have considered triangulation however the UK company is not registered for VAT in the country in which it receives the products (though maybe it should be).
I haven´t been able to get any sensible guidance from HMRC on the matter.

Has anyone come across a situation like this?

Any guidance gratefully received.
CS

Replies (3)

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By mattayton
27th Mar 2009 16:09

Outside scope UK VAT
I personally wouldn’t pay too much attention to those paragraphs in the notice, I imagine that they are there to avoid situations where goods move round the EU and no acquisitions tax is declared. As the notice says, the customer still remains liable for the acquisition tax in the member state of arrival, and tax shouldn’t be declared twice for the same transaction, so it is hard to imagine when they would apply.

With regards to your VAT return, sorry I meant box 9, not 8 as you correctly said. As there is no acquisition in the UK, there is nothing to report – it is outside the scope of UK VAT. It is however within the scope of VAT in the member state of arrival – and this is what you need to consider.

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By User deleted
27th Mar 2009 15:07

HMRC said
Thanks Matthew for your reply.

I have since put the UK aspect past HMRC in relation to how to report the transaction. There view is that the criteria for an acquisition (para 7.1 notice 725) are not met as the goods have not arrived in the UK, hence there is nothing to report on the UK VAT return. Whilst this makes sense I therefore do not understand what paras 7.7 and 7.8 (notice 725) are referring to especially as the UK company in question is using its UK VAT reg number to purchase the goods?

When you say that there is no UK acquisition, were you implying not to include it on the VAT return anywhere or just not box 9?

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By mattayton
27th Mar 2009 13:24

new registration likely
You are correct that as the goods do not enter the UK, they are not subject to acquisition tax in the UK, that is they don’t hit box 8 of the VAT return, and it is not a transfer of your own goods out of the UK.

If the goods were sent to a customer in the third EU state then this would be triangulation. The purchase and sale wouldn’t hit your UK VAT return, but you would show the sale in your EC Sales list (with an indicator to show it is triangulation).

Your problem is that there is no recipient customer in the third EU state – you retain title of the goods. The goods arriving in the third country would be subject to acquisition tax in that state. The responsibility to report this would fall to you as the owner of the goods. In addition to this, as the goods are used in the production of a product, when you come to sell this product the place of supply will be the country where they are located, not the UK.

It would therefore appear that you would need a VAT registration in the third EU State. You can do this without having to form any kind of establishment, company branch etc. Once you have this number your suppliers can invoice to that number directly, you account for the acquisition of the goods, you can deduct the VAT associated with the storage costs and the R&D costs and any on-ward supplies can be billed from there. You can read more about this issue on this website http://www.tmf-vat.com/european-vat which looks at European VAT trading.

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