With the pending introduction of postponed accounting for import VAT from 1 January 2021, HMRC has recently issued Revenue and Customs Brief 15/2020 reiterating that only the owner of imported goods can reclaim that VAT.
HMRC first outlined in Revenue and Customs Brief 02/2019 its change of policy following their own view that businesses were incorrectly treating the VAT on import. It set out that claims for import VAT from non-owners of imported goods, such as toll operators or in situations where title had passed before import into the UK, were incorrect. This was because the view of HMRC only allowed for the person to whom the supply was made to make a valid claim for input tax.
The Brief stated that HMRC was aware that past guidance had not been clear on this issue and hence the new policy was to have effect going forward only. The new policy took effect from 15 July 2019.
HMRC has reconfirmed in this latest Brief that the policy stated in April 2019 remains as previously set out. It is the owner of the goods that remains the only person eligible to recover the import VAT.
This means that come 1 January 2021, it is the owner of the goods on the day they come into the UK that can use postponed VAT accounting and hence recover the import VAT. The owner of the goods should therefore be the importer of record at this time and have their EORI number on the import declaration.
Since the 2019 Brief was issued there had been representations from a number of businesses and organisations about how the rules applied in certain situations. HMRC has responded to these questions by providing examples of how to manage some of the specific issues faced by businesses.
Agents may be given the authority to act on their client’s behalf. If they act as an undisclosed agent then the VAT rules treat them as the importer and supplier of the goods, rather than the client. In this instance, the agent can reclaim the import VAT as input tax but must also treat the onward transaction as a supply made by them and account for any VAT in the normal way.
Customs warehousing allows for goods sourced from overseas to be warehoused, and provided they are not entered into free circulation, they will not incur VAT or duty until such time as they are imported.
Ordinarily the retailer would only take ownership once the goods have been delivered. It would therefore be incorrect for the retailer to recover the import VAT as they do not own them at this point. It would actually be the responsibility of the overseas seller to declare and recover the import VAT, which may make them liable to register for UK VAT.
HMRC has suggested that retailers take ownership of the goods before they are removed from the warehouse. This would mean that the overseas seller would not have to register for UK VAT and the retailer could recover the import VAT.
Goods are moved into the UK and then used to make a lease of them to a third party. HMRC has made clear that two events happen when VAT is due, at the import and on the lease. The person leasing the items does not take ownership of the goods and hence they cannot recover the import VAT.
There are a number of customs procedures which can be used by businesses to help suspend, reduce or give relief from import charges. The Brief has stated that in HMRC’s view, if these procedures are not used and a normal import takes place, the standard rules apply and hence VAT must be accounted for and deducted by the correct entity.
Businesses involved with importing goods which they do not take ownership of are very likely to be negatively impacted by this Brief. They should review their current structure (including engagement with agents, warehousing and freight carriers) to ensure that there is clarity on the owner of the goods at the time of import, and hence confirmation on who has the right to recover any import VAT that may be applicable.
This is particularly important as following the publication of Brief 15/2020 the European Court of Justice (ECJ) has delivered a judgement in the case of Weindel Logistik Service Spol s.r.o. (C-621/19) which supports HMRC’s position. This case involved a toll manufacturing business which imported goods to repackage them and deliver to other Member States on behalf of a customer. The customer retained ownership throughout the process but Weindel recovered the import VAT. The ECJ stated this was incorrect because to deduct import VAT you must have a right to dispose of the relevant goods as owner and the import costs must be incorporated into your pricing.
The outcome of this case means that it is unlikely that HMRC will change its view as set out in the Brief. If you think that you may be impacted by this Brief and the ECJ decision please let your normal Crowe contact know, or contact Robert Marchant or Rob Janering in our VAT team for more information.