Truck driving into sunset

Exporters of goods – VAT and customs considerations

James Masters, Manager, VAT and Customs Duty Services and Ian Worth, Director, VAT and Customs Duty Services
23/11/2022
Truck driving into sunset

For almost two years, businesses involved with the cross-border trade in goods have been responding to a number of post-Brexit changes to VAT and customs duty rules and processes.

Many of the changes concerned the import of goods into the UK, but it’s also pivotal that exporters of goods from the UK are just as aware of their obligations.

As a result of a volatile UK market and drop in the value of the pound, there is also the possibility that overseas buyers will acquire more goods from the UK as a result of getting more goods for their money. If this were the case, the volume of exports from the UK would inevitably rise. Many of the rules attributable to imports are applicable for exports; however, exporters should be aware of the conditions in order to make VAT free sales of goods from the UK, as well as understanding the implications of their Incoterms® and supply chain.

VAT rules for exporting goods

The rules surrounding exports aren’t new, but many would have needed to familiarise themselves with the differences between EC intra-community supplies (i.e. dispatches) and exports, where their supplies were solely to EU. Prior to Brexit, dispatches could be zero-rated for VAT purposes (providing conditions were met) and moved within the single-market and EU Customs Union, free of customs obligations. These movements were not “exports” requiring full export declarations as they were not sent outside the EU customs territory. Post Brexit the previous indirect tax rules for exports are extended to all shipments leaving the UK.

To export goods as a zero-rated supply, businesses need to be able to demonstrate that those specific goods are destined for a location outside the UK. To meet that criteria, they will need to:

  • export the goods within the specific timeframe (usually 3 months)
  • hold valid, official or commercial evidence of the export.

In relation to the latter point, HMRC specifies a range of documents that it considers as valid evidence. Customs declarations at the point of export (such as C88) will often suffice in addition to an expansive list of secondary documents such as (but not limited to) authenticated waybills and certificates of shipment.

Practical issues

From experience, the retention of export evidence is a primary VAT risk for export businesses. This remains a “hot-topic” area for HMRC who will look at VAT free exports made by businesses to ensure that all of the conditions have been met in order to have adopted that position. HMRC has historically instructed suppliers to subsequently account for VAT at the standard rate where not all the required documentation has been held. This can lead to expensive VAT bills for exporters, who may have a difficult time passing on those costs to customers who would expect a VAT free purchase. It also adds the risk of penalties applying for the under declaration of VAT.

To mitigate these risks, businesses should ensure that they have well documented processes in place which only allow zero rating to apply when these are held. This will also put the emphasis on customers who sort out collection of the goods to provide these documents in order to obtain a zero-rating indirect export.

Indirect exports

For those making their own exports, it should be easier to acquire and hold these records should HMRC visit. However, a wide range of businesses will use ex-works Incoterms® to protect themselves from overseas obligations. While beneficial from this respect (as it makes the customer the responsible party for customs obligations), suppliers are then reliant on customers to ensure that sufficient documentation is held in order to zero-rate that supply. As a result, there are more stringent requirements in order to zero-rate the export. Failure to obtain the correct evidence should result in a supplier charging UK VAT at the standard rate until such time that the customer provides the documents required. Ordinarily, the threat of a VAT charge results in customers providing a range of official and commercial evidence; however, it is the supplier’s responsibility to review that documentation, as failure to hold the correct evidence and get the VAT treatment wrong impacts the supplier, rather than the customer providing those documents.

Overseas obligations

Not only do Incoterms® impact the responsibilities of a supplier’s exports, but there can also be consequences in the destination country. We recommend that businesses review their full supply chain rather than looking at just its impact in the UK, as UK businesses could inadvertently create an obligation to (at a minimum) declare and pay indirect tax and customs duties at another customs border. In addition to this, a review of ownership should also be undertaken to ensure that no further obligations (usually in respect of VAT) are required. This is particularly important now that UK entities cannot utilise EU simplifications, particularly triangulation, which allowed businesses to move goods between two-member states where a VAT registration was not held, without the requirement to register in either of those countries.

Customs duty representation

Customs declarations must be submitted by an importer or exporter, either themselves, or through a representative. Few businesses have sufficient resource to complete and submit their own declarations, so they rely on customs agents to act as their representative. Agents can act either as “direct representative” or “indirect representative” – the difference between these statuses is important.

Direct representation is favoured by agents, because they assume no liability for the declaration made on behalf of their customer. The declaration is made in the customer’s name (ie the importer for import declarations), with the customer retaining full liability for the accuracy of the data being submitted on their behalf. However, a direct representative can only be appointed by a customer who is established in the country where the declaration is being made.

Indirect representation means that the agent is joint and severally liable with the importer, for the accuracy of the data submitted. For this reason, agents are reluctant to act as indirect representative, and often will charge higher fees, and/or require some level of indemnity from their customer. A non-established importer can only appoint an agent on indirect representation terms.

Customs authorities will always hold the importer responsible for the accuracy of customs declarations, unless an agent has acted as indirect representative. Where an agent is not authorised in writing to act as a direct representative, or where he fails to perform in accordance with written clearance instructions from the importer, HMRC will deem that the agent acted as an indirect representative.

The Incoterms® attached to a transaction help to determine whether the buyer or the seller is responsible for the appointment of a representative, whether for import declarations, or export declarations.

In summary

While export VAT and customs requirements can seem far-reaching, having a general understanding of the responsibilities of the parties involved in exporting goods will go a long way to making sure that all obligations are met. The requirements are not new, but Brexit can mean that more businesses are subject to them. The overarching risk is the lack of export evidence when zero rating an export and we recommend that where there is doubt in how your exports are managed, that professional advice is sought to confirm the position.

For further information or to discuss how we can help you, please contact Robert Marchant or your usual Crowe contact.

Insights

From 1 January 2021, UK VAT registered organisations will be able to declare and recover VAT on the same VAT return.
HMRC are writing to businesses asking them to either register for PPT if they are required, or confirm that they are not required to register.
From 30 September 2022, the CHIEF system will close for imports and CDS will become the UK’s sole customs declaration platform.
Retailers in the UK have had to deal with new logistical challenges in getting stock onto their shelves.
From 1 January 2021, UK VAT registered organisations will be able to declare and recover VAT on the same VAT return.
HMRC are writing to businesses asking them to either register for PPT if they are required, or confirm that they are not required to register.
From 30 September 2022, the CHIEF system will close for imports and CDS will become the UK’s sole customs declaration platform.
Retailers in the UK have had to deal with new logistical challenges in getting stock onto their shelves.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services
London