HMRC has clarified its position on businesses reclaiming VAT on goods they are importing, despite not owning the goods in question. From July 15, this situation will no longer be allowed and now many businesses face a race against time to get ready.
The innocuously named Revenue and Customs Brief 2/2019 represents a major change for UK businesses and will make VAT reclaim on imports an altogether more intricate affair, according to Blick Rothenberg, a leading accounting firm and tax advisory.
Many businesses act as the ‘importer of record’ on UK import declarations, despite not being the owner of the goods. The title to the goods at all times remains with overseas customers or, in the case of businesses, the goods are sold before import into the UK passing ownership to a new owner.
It's a situation that’s historically been tolerated, but from July 15 will no longer be allowed. Only the owner of the goods can reclaim VAT, meaning overseas companies will need to register for VAT or changes to the ownership of goods having to be made before they enter the UK.
The HMRC update acknowledged that there’s no revenue incentive for the change. The importer of record on UK import declarations pays the import VAT to HMRC and receives the import VAT certificate (C79). The tax authority doesn’t receive a penny less than what is owed.
“The revenue is not getting anything out of it, the businesses certainly get anything out of it other than additional administration,” said Alan Pearce, a VAT partner at Blick Rothenberg.
Pearce cited the example of a Canadian client that imports steel to the UK. A coating is put on the steel here and then transported back to Canada. The processing company in the UK pays the VAT due and reclaims it.
This will no longer be allowed and the Canadian business will have to administer its own VAT. “HMRC has categorically stated that only the owner of the goods should be the importer of record for the purposes of reclaiming the import VAT, either via its UK VAT registration or via the VAT refund procedure for traders established outside the EU.”
Pearce said the change could also affect “other overseas businesses that have used UK third party agents or subsidiaries which do not take title to the goods but take responsibility for the onward sale or disposal of the goods and have acted as the importer of record on behalf of the owner.”
Neil Warren, an independent VAT consultant and AccountingWEB contributor, however, said he does understand HMRC’s position. “I have encountered practical situations where an import agent has entered the wrong details for an import of goods, resulting in the C79 certificate going to the completely wrong business.
“The agents have often told the business to pay the VAT in such cases and claim it as input tax on their next VAT return because they hold the C79 document but this is wrong. A business cannot claim input tax on someone else's goods, even where this is done as a simplification measure to avoid, say, a complicated 13th Directive claim being made by an overseas business.
“Any claim for input tax needs to overcome a series of hurdles, and it is not just about holding a valid purchase invoice or C79 document."
In its revised guidance, HMRC accepted its previous guidance was not clear and it will “will not pursue historical VAT deduction where the VAT could have been recovered in full by the owner of the goods at the time of importation as long as there is no risk of duplicated claims”.
However, Pearce told AccountingWEB, there is some doubt over whether HMRC’s revised rules are contrary to EU legislation, opening up a potential legal challenge to this change. But, Pearce urged businesses not to hang their hopes on this and prepare for the regime. “As we stand at the moment, with effect from 15 July 2019, businesses will need to apply HMRC’s revised procedures or face VAT claims being rejected.”