VAT: Call off stock basic rules
In the first of two articles, Neil Warren considers the basic rules for call off stock arrangements, the second article will consider the new legislation.
The draft Finance Bill 2020 includes changes made in relation to call off stock which is held in EU Member States from 1 January 2020. The amended law for UK traders took effect from 16 March 2020.
Call off vs consignment stock
You may not be familiar with the difference between a ‘call off’ and ‘consignment stock’ arrangement as far as trading in goods with EU countries is concerned. If you have clients who have ‘call off’ arrangements in place, their VAT outcome is likely to change in January 2021, depending on the outcome of negotiations with the EU, so now is a good to time to get on top of the terminology.
Call off stock
Where a UK business holds stock in another EU country and the buyer of the stock is known at the time the goods arrive in that country. The stock is usually (but not always) held at the customer’s premises. As long as the known customer is VAT registered in that country, the UK business does not need an overseas VAT registration, raising intra-EU sales invoices to the customer from the UK as they take ownership of the goods.
The invoices are zero-rated as an intra-EU supply of goods. The customer will account for acquisition tax on their own VAT return based on the rate of VAT that applies to the goods in their own country. The same amount will be claimed as input tax, assuming the goods are used for taxable purposes. If not, then an input tax block will apply for any exempt, non-business or private use. These arrangements were not affected when we left the EU on 31 January 2020.
In this case the goods have no known customer when they arrive in the other EU country and are held as stock there by a UK supplier. In this situation, the UK business holding the stock should have a VAT number in that country and charge domestic VAT when a customer buys the goods. The transfer of the stock from the UK to the EU country is an intra-EU supply of goods between the supplier’s UK and EU VAT registrations.
Mario’s Ice Cream Manchester holds a stock of ice cream in Ireland, which will be purchased by Dario’s Ice Cream Dublin when they need it. Mario has no other customers in Dublin. This is a ‘call off’ stock arrangement.
Sales invoices raised by Mario to Dario when Dario takes ownership of the goods will be zero-rated as long as Dario is VAT registered in Ireland. Dario will account for acquisition tax and claim input tax on his Irish VAT returns. Mario does not currently need an Irish VAT number. See VAT Notice 725, para 15.2.
Mario also rents a unit in Belgium, with ice cream purchased by a variety of customers from the stock he holds there. Mario must be VAT registered in Belgium with the following consequences:
Zero registration threshold
A UK business benefits from an annual registration threshold for the taxable supplies it makes in the UK of £85,000. Likewise, an Irish business can take advantage of the registration threshold for taxable sales it makes in Ireland. But a business making supplies in an EU country where it is not based will get a zero-registration threshold.
In Example 2, Mario will need a Belgian VAT number even if his annual ice cream sales in Belgium are only €10.
Finance Act 2020
To complicate matters, EU law was amended on 1 January 2020 to introduce four VAT “quick fixes.” One of the ‘fixes’ tightens the procedures for call-off stock arrangements and will be legislated for in Finance Act 2020 with retrospective effect from 16 March 2020.