• Date

    24 May 2024
  • Category

    VAT & Indirect Tax
  • Author

    Louise Phillips

Increased HMRC focus on businesses involved in import/export activity

We are seeing HMRC increase their focus on businesses importing and exporting goods. With the landscape being relatively calm on this front since Brexit, it seems that there has now been renewed attention on ensuring that businesses are fully compliant.

We have set out details of some of the areas we are seeing challenged below:


Import VAT being recovered by non-owners

A recent VAT decision highlighted HMRC's approach in this area. HMRC successfully challenged a business that had recovered import VAT on third party goods it was importing for testing/research purposes. As the business could not demonstrate that it owned the goods at the time of import or that the import VAT constituted a cost component of its onward supplies, HMRC determined that the import VAT at issue could not be recovered by the business. The VAT Tribunal agreed with HMRC. Businesses that are recovering import VAT on goods that belong to someone else are therefore at risk of VAT assessments, plus associated interest and penalties.


Origin of goods

Businesses need to familiarise themselves with the value added at each stage of production to reach a correct determination of country of origin. Added to this, the business needs to be aware of any specific rules relating to their goods contained in Trade Agreements. Responsibility for this function often falls between the cracks between finance/tax and supply chain teams. Errors regarding Origin can lead to significant additional duties, penalties and commercial ramifications with customers.


Classification of goods

Classifying goods correctly for customs purposes is crucial if customs duty is going to be paid correctly. Businesses that don't have an in-house trade compliance team will often be totally reliant on their freight carriers to do this for them, leaving them unaware of whether this is being performed correctly. A one size-fits all approach is often taken, meaning goods are not being classified according to the rules. Incorrect classification of goods can lead to assessments for underpaid duty plus interest and penalties.


Export evidence

This is a known area of HMRC challenge. Businesses have to be able to prove that goods have been shipped overseas to justify applying the zero-rate of VAT. For businesses using inco-terms such as EXW/FCA, where the customer collects the goods, it can be particularly challenging to obtain this evidence. Failure to be able to demonstrate that the goods have left the UK presents an easy win for HMRC, who will frequently examine a small sample of sales and then extrapolate the proportion of under-declared VAT across all of the business' supplies. Amounts at risk can be substantial.


We are here to help

Managing your VAT liabilities can be confusing and time consuming, so we are here to assist you in navigating. If you are involved in import/export activities and you think you may be affected by the above, please get in touch with a member of our specialist VAT team or your usual Azets advisor.

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Louise Phillips

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Louise Phillips

Senior Manager Gosforth

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