Agency arrangement – beware, it might bite!

The First Tier Tribunal decision in Scanwell Logistics UK Ltd concerned OSR (Onward Supply Relief). The FTT described OSR as a short cut to having to pay import VAT and then reclaiming it as input tax against the subsequent zero-rated export (or removal to the EU).

The complication was that Scanwell imported the goods as agent of the customer, which meant that OSR was not applicable. It argued that s47 applied such that Scanwell was deemed to be the principal in the supply. OSR therefore should apply, it argued, thereby avoiding the substantial cash flow issue (the assessment was over £5m).

The application, or non-application, of s47 is worth a read (paras 35-61). The FTT’s conclusion (para 67) was that the receipt and custody of the goods conferred a fiduciary role on Scanwell, but it was not an agent to deal with title to the goods. Therefore, the FTT held, it could not be an agent for the purposes of s47, and therefore the arrangement fell outside of OSR. It seems to me that the taxpayer might appeal on the question of whether it was ‘the wrong type of agent’!

We are seeing the question of ‘agency v principal’ more frequently. UK VAT Law does not match the equivalent EU provisions; and HMRC guidance is confusing. All this leads to uncertainty for the client, which is unhelpful.

Ideally, of course, the taxpayer will have a clear written contract(s). But even that is not a guarantee that HMRC will not challenge the arrangement.

The Scanwell decision is here:  www.bailii.org/uk/cases/UKFTT/TC/2021/TC08207.html