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VAT on shipping by intermediary Company

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Hi everyone,

I have recently taken up a client (VAT Reg company in UK)who is buying machinery from Italy and selling one in UK. Now the supplier company is adding shipping in the total price that is being charged to the client. My client is wondering whether he should also charge VAT on the shipping cost (adding shipping cost to the cost of machinery and charging Vat on the total price?) when he invoices his customer in UK??

Wonder if the disbursement/recharges rules apply here and how? and if some of you have come across a similar scenario.

Any help would be highly apprecitaed.

 

Kind regards

 

Replies (5)

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By WhichTyler
18th Sep 2019 14:42

It will depend on the details of the contract between your client and the end customer (which obviously we don't know), but it may be worth reading https://www.gov.uk/guidance/vat-on-freight-transport-and-associated-serv... and talking it over with your client company's accountant

And remember (if in doubt) if the end user can recover the VAT charged, it's no skin off their nose if you charge it. If you don't charge it and HMRC think you should have, you (or rather your client) could end up bearing the cost

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By paul.benny
18th Sep 2019 14:49

Very good point. HMRC get much more upset if you charge too little VAT than if you charge too much.

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By The Dullard
18th Sep 2019 15:08

If VAT is incorrectly charged, HMRC can, and do, disallow recovery of it as input VAT on the basis that it is not VAT at all, but an amount purporting to be VAT.

On the limited etail provided by the OP though, I would suggest that the supply is just of a machine and the shipping cost is simply a factor in determining the consideration. It doesn't sound at all like a disbursement, and there are no "recharge rules" as the OP suggests.

I assume that the OP is aware of the need to acquisition account for an intra-EU acquisition, which have hopefully been correctly as exempt (with right of recovery) by the Italian supplier?

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By paul.benny
18th Sep 2019 15:51

The Dullard wrote:

If VAT is incorrectly charged, HMRC can, and do, disallow recovery of it as input VAT on the basis that it is not VAT at all, but an amount purporting to be VAT.

I've never come across this in practice. I can understand HMRC seeking to disallow input tax where the supplier didn't account for or pay over their output tax charged. Have you seen this where is was merely an error or misunderstanding by the seller?

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By The Dullard
18th Sep 2019 16:20

For the most part individual officers do tend to be pragmatic in this respect, but I have seen it happen in relation to residential construction projects where the correct rate has not been applied, and a "safe" approach has been taken. The issue is that if HMRC take this approach, they are technically correct.

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