Major changes to the ability to reclaim Import VAT from 15 July 2019 Act now – regardless of Brexit!
HMRC has issued Revenue & Customs Brief 02/19 which ‘clarifies’ its policy with regard to who/which entity is entitled to import goods and reclaim the associated import VAT.
To date HMRC has permitted a ‘person’ who does not actually own the goods at the point of entry into the UK to act as the ‘importer of record’. The declaration at the port of entry then generates the import VAT certificate (C79) which supports the import VAT reclaimed by the importer of record.
Whilst HMRC has historically accepted this position, as of 15 July 2019, only the legal owner of the goods will be entitled to reclaim the VAT paid when goods are imported.
The clarification, which in reality represents a significant change, will affect many businesses involved in the importation of goods.
How will you be affected?
- Do you purchase goods from outside the EU where ownership only passes when the goods are paid for but you act as the importer of record and claim the import VAT? This will no longer be permitted and could affect cashflow, the price you will pay, and potentially disrupt your supply chain if goods are delayed.
- Are you a foreign business that sells goods to UK customers but own the goods until delivered in the UK/paid for? Do you supply your UK subsidiary with goods? You will now be responsible for the importation of those goods.
- How can you mitigate your VAT cost and secure import VAT recovery? Will you have an obligation or option to register for VAT in the UK or are you able to reclaim the import VAT paid via an alternative procedure? Declaring and paying Customs duties will also be your responsibility going forward. Customs duty is not recoverable in the same way that VAT is. This may impact your supply chain/contracts/pricing structure. Are you eligible for VAT/duty reliefs?
- Is your business involved in working on goods where goods are temporarily imported and then exported/sent back to the owner? You should consider applying for VAT/duty reliefs.
Businesses should consider the impact of these changes and make arrangements to ensure any costs/disruption to the business are minimised. Contractual terms should be reviewed to ensure they remain relevant to the ‘new’ trading circumstances and business continuity risk is minimised.
On the basis that HMRC has stated that its guidance was previously unclear, it has confirmed it will not seek to assess retrospectively where the declarant was the ‘importer of record’ rather than the owner of the goods provided full VAT recovery was available. However, as a business, you should establish whether any historic assessments that have been issued within the last four years may be appealable based on the revised policy.
This does represent a significant change which could adversely affect suppliers and customers in the supply chain both practically and financially. If the UK leaves the EU without a deal, the impact of this change may well be greater.
Our indirect tax team can assist you in dealing with the transition by reviewing your current supply chain, assessing the practical and financial risks on your day to day dealings based on current contractual arrangements and also recommend strategic solutions to minimise your potential exposure both financially and logistically.
For more information, please contact our Tax team.