UK import VAT and customs: where is my import VAT?

In practice, some customs agents apply PIVA to all imports, while others decide on a shipment-by-shipment basis. As a result, many organisations have a mix of imports under PIVA and the traditional system, where import VAT is paid at the border and, subsequently, recovered using a C79 certificate. This dual approach gives rise to a negative cash flow position and has added complexity, requiring changes to VAT return preparation processes.

The move from HMRC’s Customs Handling of Import and Export Freight (CHIEF) system to the Customs Declaration Service (CDS) created further challenges. PIVA statements and C79 certificates must now be accessed through HMRC’s customs financial accounts service, using the Government Gateway credentials associated with the organisation’s CDS subscription. Organisations should ensure that the correct employees and advisers have access and that statements and certificates are downloaded, reviewed and retained regularly. Failure to do so can result in import VAT being omitted from VAT returns or insufficient evidence being retained to support recovery.

For organisations importing into the UK for the first time, obtaining a UK VAT registration can often be a lengthy process. Where goods need to be imported before the registration is in place, organisations should consider whether the customer can act as the importer of record. If this is not possible, an application can be made to HMRC for a temporary EORI number. While this allows goods to be imported into the UK, import VAT will generally need to be paid at the border before the goods can be released. 

A temporary EORI number can keep goods moving, but it does not allow the related import VAT to be recovered. Once the UK VAT registration has been obtained, the import declarations should be amended to reflect the permanent EORI number. This creates the evidence needed to support recovery of the import VAT through the VAT return. In practice, this can mean that recovery is delayed by several months and is generally limited to imports made on or after the effective date of registration. To avoid further complications, organisations should ensure that their customs agents use the permanent EORI number for all future imports.

A common challenge in cross-border trade is identifying which entity is the importer of record. Multinational groups are often unclear whether a specific group company, the supplier or the customer should fulfil this role. 

Commercial considerations frequently influence this decision; suppliers often seek to avoid UK VAT and customs obligations by making the customer act as the importer of record, whereas the customer often wants the supplier to manage the import process as, for them, it may be simpler. Irrespective of the approach taken, it is essential that this is clearly communicated to the customs agent/freight forwarder. 

There can also be confusion around the application of Incoterms®, which allocate responsibilities between buyers and sellers, including:

• completion of customs formalities 
• transport
• delivery
• risk
• insurance
• liability for import VAT and duties. 

Inconsistencies between the agreed Incoterms® and what happens in practice are not uncommon. For example, a supplier and customer may agree DDP (Delivered Duty Paid) Incoterms® under the contract, but the customer may inadvertently be declared as the importer of record on customs entries. This can create uncertainty around who is responsible for import VAT and customs compliance.

These issues can lead to delays at the border, unexpected import costs and additional compliance obligations. In some cases, an organisation may even be required to register for VAT in the country of import, where this may have otherwise been avoided. Care should be taken to ensure that the agreed Incoterms®, the intended importer of record and the customs instructions provided to freight forwarders are all aligned and applied consistently in practice.  

Even where the correct importer of record has been identified, organisations should not assume that import VAT recovery automatically follows. 

One commonly overlooked condition for import VAT recovery is ownership. As a general rule, HMRC expects the person seeking to recover import VAT to be the owner of the goods at the time of import. For VAT purposes, ownership is not necessarily the same as legal title, but instead generally refers to the right to dispose of the goods as owner.

Import VAT recovery may still be possible where legal title passes at a later date, provided the contractual arrangements give the importer the right to use and dispose of the goods.

It is therefore important not to assume that being the importer of record, or simply paying the import VAT, is enough to secure recovery. Similarly, the Incoterm® used does not, by itself, determine ownership.

Organisations should therefore review their contracts and supply chains carefully to establish who is the owner of the goods at the point of import. Given the potentially significant amounts of import VAT involved, this is something that is best considered before goods enter the UK, rather than after a recovery issue has arisen.