VAT: Finding your export evidenceby
HMRC require zero rated exports to be supported with an array of documents and there is a risk of penalties and VAT liabilities if the right paperwork is not obtained.
The rules for zero rating an export have not changed since Brexit, but businesses who only traded with EU countries previously may not be well versed with the export paperwork requirements.
Marv’s Marvellous Mugs Ltd (MMM Ltd) is based in the UK and manufactures bespoke mugs for corporate customers in the UK and EU only. A new EU based business customer places a large order of mugs and arranges for the goods to be transported using their own freight agent. The customer has arranged their own freight because they want to control the shipping process, ensuring their freight agent has the right documentation for delivery, etc.
The problem for Marv is that they don’t have any documents, other than their invoice, to evidence that the goods have been exported. HMRC may take the view that the customer simply arranged for the goods to be collected at the factory and delivered to warehouse five miles up the road.
The situation facing MMM Ltd is called an indirect export. The guidance in HMRC Notice 703 suggests that MMM Ltd should charge VAT until the customer sends the documents needed to support zero rating, and then issue a credit note for the VAT once the customer sends the proof of export.
HMRC’s guidance refers to a basket of evidence that contains sufficient commercial evidence. Such evidence can include air and sea waybills, bills of laden, purchase order from freight agent/courier, other documents from the freight agent that show the customer’s name/address. The guidance also notes that with the exception of specific circumstances, vague assertions by a trader that they acted in good faith, is not sufficient to support zero rating on its own.
That evidence must be obtained within three months of the export, otherwise, the export becomes standard rated and that evidence needs to be retained with the other business records.
In the example above if MMM Ltd were responsible for the shipping, they would still need to ensure the freight agent supplies the appropriate paperwork and retain it within the business records.
On a much smaller scale, a business that ships goods by a physical visit to the local Post Office, should obtain a proof of posting receipt from the Post Office counter. This may be the only proof the trader will have to show HMRC that the goods have been posted to the customer abroad.
If a business does not hold the evidence needed to support zero rating, HMRC will assess VAT at the standard rate. HMRC can assess for VAT for the entire period that the evidence was not available and potentially charge interest for the period the business was not compliant. Neil Warren’s article, Brexit warning for quality of export documents, set out what can happen if the documents do not reflect the correct goods.
In a post-Brexit landscape, the importance of zero rated export evidence has not diminished. In fact, the importance of export document evidence has increased, as the export rules now apply to EU transactions.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...