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international trading
istock_Fabian Wentzel

VAT considerations when trading internationally

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27th May 2016
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We all know that VAT is a complex tax. In my opinion it is quite often about knowing when to ask the right question, rather than possibly trying to know or understand all the detail.

At a time when European and US trade considerations are high on the discussion agendas, I have looked to cover an area forgotten when we think about VAT.

For this article, I questioned two trusted advisers, Fred Cowgill, VAT consultant for David Cadwallader & Co Accountants, and Nicki Paddy who offers bookkeeping and international trade accounting services, about the current hot topics hitting VAT and international trade.

I understand that the VAT MOSS system has been changed?

Fred Cowgill: In January of this year HMRC agreed that for purposes of determining the place of supply for digital services supplied to non-business EU customers that it is only necessary to have one type of evidence, not the multiple forms of evidence as previously required. The types of evidence can be seen on the VAT MOSS leaflet published by HMRC.

HMRC has also changed the bank details for payment of VAT MOSS. A great deal of information can be obtained on the MOSS system online from HMRC. The system cannot for example be used for goods or non digital services which are supplied in other member states. The leaflet HMRC Guidance Note 18 January 2016 should be read by anyone with a client who could be involved in Vat MOSS.

How should a trader account for VAT on supplies of goods or non digital supplies of services to non business customers in another EU State?

FC: As most traders understand the normal method of VAT accounting in these circumstances is to charge UK VAT on the supplies made. However, you must be careful that the goods or services cannot be seen as supplied where the customer resides. For example, the supply of services related to a property in Spain would be seen as services supplied in Spain, and whilst they are outside the scope of UK VAT, they may be liable to VAT in Spain. Furthermore, the UK supplier may need to be registered for VAT in Spain. With the increasing amount of cooperation between the fiscal authorities within the EU, this is something that is more easily picked up.

Recently, a number of UK businesses trading through Amazon and eBay have been caught for substantial penalties in other member states. Because they thought they were trading through an intermediary, they did not think they had to consider these issues. They were, however, found to be making supplies in other member states and were liable to account for VAT in those countries. It is therefore prudent to check that all the supplies the trader is making are correctly accountable for VAT in the UK.   

What kinds of things do HMRC check for when they make a visit looking at the import transactions?

Nicki Paddy: HMRC carries out several types of inspections when dealing with imports and exports.  Sometimes it carries out one-off inspections, and other times, it will combine inspections when looking at other things. I can give you a few examples:

If any goods are imported as FOC samples, HMRC will require proof that the samples have not been offered for sale, and will look to see that they are either still in your possession or that they have been destroyed. 

Samples are just that. If the samples are later offered for sale, HMRC will want the duty and VAT that should have been applied.  

If any items have been shipped to or from the business for repair, then they can come through customs via a different route which means that no duty is paid on the import at either end of the return. The inspector will check that the goods have left or been returned - so there need to be import and export matching entries.

Each month the C79, monthly import VAT certificate, is issued to a named business so the VAT can be reclaimed. The entries for this are made by Freight Forwarders but it is the business’ responsibility to check that this form is correct and all the shipments listed on the certificate are theirs and they are not missing any. HMRC also wants to see proof that this check has been made.

You have mainly talked of imports. So what does it look for when reviewing a business’s exports?

NP: When exporting supplies that are taxable at the standard rate the business is required to demonstrate that they can zero rate them.

For EU cross border transactions – it is a matter of getting the VAT number of the business, checking that it is valid and relates to them, and holding it on file. It then needs to be stated on every invoice to the customer where things have been zero rated.

For Non-EU transactions, the key thing that it looks for is that the goods have left the EU.  Proof is required and will be checked. If you do not have the proof to hand during an inspection HMRC will issue a demand for the VAT that would have been otherwise charged. 

The proof of export can be something as simple as holding onto the POD documents from freight forwarders and couriers, or a proof of posting receipt from the post office.

If we were to withdraw from the EU would it affect VAT?

FC: VAT was introduced in the UK as a requirement of our membership of the common market. Our legislation has to conform to the basic EU model. If we were no longer a member of the EU we would not need to conform.

If we were to stay in a common market (which has been one suggestion) as opposed to being in the full European Union, we would have to keep it in its present form and would still be subject to the EU tax policy. If we withdraw from everything in the EU, all the above procedures would have to be rethought which will be good or bad, depending upon your point of view.

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