Category Archives: Customs

VAT: The Windsor Framework

By   1 March 2023
0

While we await the fine details, trade between GB and Northern Ireland is likely to be subject to new rules. These are set out under the heading of The Windsor Framework published by HM Government.

(Very) General

Via the Northern Ireland Protocol (NIP), Northern Ireland operated under the EU VAT rules. There are revised VAT rules set out in The Windsor Framework. The EU rules on VAT rates will not apply to a list of goods for consumption in Northern Ireland in certain circumstances.

The Windsor Framework amends the legal text of the NIP to ensure that Northern Ireland will be subject to the same VAT and excise rules that apply in the rest of the UK.

The Framework means that legislation to apply the zero-rate of VAT to energy saving materials can be introduced. A number of other flexibilities should enable UK-wide VAT changes to apply in Northern Ireland. It is anticipated that future VAT issues can be addressed in order to manage any divergences in policy between GB and Northern Ireland.

A bit more detail

The Windsor Framework sets up a new UK internal trade scheme, based on commercial data-sharing rather than traditional international customs processes.

Under the NIP, a framework exists that allows goods to move from GB to Northern Ireland tariff-free. If the goods do not fall within that framework, they are treated as if moving across an international border and full customs declarations are required.

This Framework introduces arrangements through a new UK internal market system (colloquially called the “Green Lane”) for internal trade. Goods being sold in Northern Ireland will not be subject to “unnecessary paperwork, checks and duties”.

The new scheme will significantly expand the number of businesses able to move goods using the Green Lane by being classed as internal UK traders.

The Changes

To ensure that internal UK trade is protected, the agreement expands the number of businesses able to be classed as internal UK traders and move goods as ‘not at risk’ of entering the EU through three changes:

  • businesses throughout the UK will now be eligible – moving away from the previous restrictions that required a physical premises in Northern Ireland.
  • the turnover threshold below which companies involved in processing can move goods under the scheme which they can show stay in Northern Ireland is increased from the current £500,000 limit up to £2 million (this means that four-fifths of manufacturing and processing companies in Northern Ireland who trade with GB will automatically be in scope).
  • if businesses are above that threshold, they will be eligible to move goods under the scheme if those goods are for use in the animal feed, healthcare, construction and not-for-profit sectors.

Businesses in the scheme that can show their goods will stay in Northern Ireland will gain access to a simplified process for goods movements, using ordinary commercial data rather than customs data.

Goods moving to the EU will be subject to normal third-country processes and requirements.

Reduction in so-called frictions

The Framework seeks to address a range of issues that added frictions or costs for internal UK trade:

  • safeguarded tariff-free movements of all types of steel into Northern Ireland .
  • a forward process for ensuring that Northern Ireland businesses can access other goods subject to Tariff Rate Quotas in the future, dealing with the unique disadvantages under the existing system.
  • where businesses cannot be certain of the end destination of their goods when first moving them into Northern Ireland, a new tariff reimbursement scheme for those who can show the goods were ultimately not destined for the EU.

VAT – A Christmas Tale

By   6 December 2022
0

Well, it is nearly Christmas…. and at Christmas tradition dictates that you repeat the same nonsense every year….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities.  May I explain what I do and then you can write to me with your advice?  If you think a face to face meeting would be better, I can be found in most decent sized department stores from mid-September to 24 December.

First of all, I am based in Greenland, but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Where do I belong? Am I making supplies in the UK? Do I pay Customs Duty?

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT?

I have heard that giving vouchers can be complicated, I think I will need help with these gifts.

The toys are of course mainly for children and I wonder if zero rating might apply?  I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it? My friend Rudolph has told me that there is a peculiar rule about gifts.  He says that if I give them away regularly or they cost more than £50 I might have to account for output tax. Is that right?

My next question concerns barter transactions.  Fathers often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return.  If I’m given Sainsbury’s own brand sherry, I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks.  Have I made a supply and what is the value please?  My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or does it count as catering? Oh, and what if the food is hot?

Transport is a big worry for me.  Lots of children ask me for a ride on my airborne transport.  I suppose I could manage to fit twelve passengers in.  Does that mean my services are zero-rated?  If I do this free of charge will I need to charge Air Passenger Duty?  Does it matter if I stay within the UK, or the EU or the rest of the world? What if I travel to every country?  My transport is the equivalent of six horsepower and if I refuel with fodder in the UK will I be liable for fuel scale charges?  After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home – is this non-business? Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay tax. Please comment.

May I also ask about VAT registration?  I know the limit is £85,000 per annum but do blips count?  If I do make supplies at all, I do nothing for 364 days and then, in one day (well, night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration?  If I do need to register should I use AnNOEL Accounting?  At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing.  I feel that my red clothing not only protects me from the extreme cold, but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts, I think I should be able to claim for red dress. And what about my annual haircut?  That costs a fortune.  I only let my hair grow that long because it is expected of me.

Insurance worries me too.  You know that I carry some very expensive goods on my transport.  Play Stations, mountain bikes, i-Pads and Accrington Stanley replica shirts for example.  My parent company in Greenland takes out insurance there and they make a charge to me.  If I am required to register for VAT in England will I need to apply the Reverse Charge?  This seems to be a daft idea if I understand it correctly.  Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

And what about Brexit? I know the UK has already left the EU, but does this affect me? What about distance selling? How do I account for supplies to and from the EU? Will there be Tariffs? Do I have to queue at Dover?

Next, you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT: Trader Support Service extended to December 2023

By   10 October 2022
0

HMRC has announced that the Trader Support Service for businesses moving goods between Great Britain and Northern Ireland has been extended until 31 December 2023.

This service is designed to assist businesses navigate changes to the way goods move under the Northern Ireland Protocol since Brexit.

The service provides support to manage digital declarations including completing import and safety and security declarations.

It also provides guidance and training to help businesses understand what the Protocol means for them, enables traders to complete declarations without the need to purchase specialist software saving time and money.

Businesses moving goods between Great Britain and Northern Ireland can sign up to the Trader Support Service and access free online courses and training materials.

Incoterms: What are they, and how can they be of use for VAT?

By   12 September 2022
0

VAT – Cross border sales of goods

Incoterms stands for International Commercial Terms.

These are published by the International Chamber of Commerce (ICC) and describe agreed commercial terms. These rules set out the responsibilities of buyers and sellers for the supply of goods under a contract. They are very commonly used in cross-border commercial transactions in order that both sides in a transaction are aware of the contractual position. They help businesses avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. The latest terms were published in 2010 and came into effect in 2011.

The use of Incoterms for assistance for VAT purposes

One of the most difficult areas of providing VAT advice is obtaining sufficient detailed information to advise accurately and comprehensively.  Quite often advisers are given what a client believes to be the arrangements for a transaction. This may differ from the actual facts, or the understanding of the other party in the transaction.

Pragmatically, this uncertainty about the details may be increased if; a number of different people within an organisation are involved, it is a new or one-off type of transaction, there are language difficulties, or communication and documentation is less than ideal. In such cases, incoterms will provide invaluable information which gives clarity and certainty and usually give a sound basis on which to advise. This enables the adviser to establish the place of supply (POS) and therefore what VAT treatment needs to be applied.

So what is this set of pre-defined international contract terms?

They are 11 pre-defined terms which are subdivided into two categories:

Group 1 – Incoterms that apply to any mode of transport are:

EXW – Ex Works (named place)

The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. EXW means that a buyer incurs the risks for bringing the goods to their final destination. The buyer arranges the pickup of the freight from the supplier’s designated ship site, owns the in-transit freight, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation.

Most jurisdictions require companies to provide proof of export for VAT purposes. In an EXW shipment, the buyer is under no obligation to provide such proof, or indeed to even export the goods. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed.

FCA – Free Carrier (named place of delivery)

The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.

It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading the goods on to the buyer’s carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.

CPT – Carriage Paid To (named place of destination)

The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named place (usually a destination port or airport). The shipper is not responsible for delivery to the final destination (generally the buyer’s facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.

CIP – Carriage and Insurance Paid to (named place of destination)

This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value.

DAT – Delivered At Terminal (named terminal at port or place of destination)

This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/VAT/customs costs are to be borne by the buyer.

DAP – Delivered At Place (named place of destination)

The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. Duties are not paid by the seller under this term. The seller bears all risks involved in bringing the goods to the named place.

DDP – Delivered Duty Paid (named place of destination)

The seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and VAT. The seller is not responsible for unloading. This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations.

Group 2 – Incoterms that apply to sea and inland waterway transport only:

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the buyer’s vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term can be used only for sea or inland waterway transport.

FOB – Free On Board (named port of shipment)

FOB means that the seller pays for delivery of goods to the vessel including loading. The seller must also arrange for export clearance. The buyer pays cost of marine freight transport, insurance, unloading and transport cost from the arrival port to destination. The buyer arranges for the vessel, and the shipper must load the goods onto the named vessel at the named port of shipment. Risk passes from the seller to the buyer when the goods are loaded aboard the vessel.

CFR – Cost and Freight (named port of destination)

The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of export. The shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer’s facilities), or for buying insurance. CFR should only be used for non-containerised sea freight, for all other modes of transport it should be replaced with CPT.

CIF – Cost, Insurance and Freight (named port of destination)

This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their. CIF should only be used for non-containerised sea freight; for all other modes of transport it should be replaced with CIP.

Allocations of costs to buyer/seller via incoterms

Once the Incoterm has been established, the VAT treatment is usually immediately apparent.

Summary Chart

Incoterms Chart

VAT & Customs Duty: Goodbye CHIEF, hello CDS

By   23 August 2022
0

Businesses who import into the UK currently use Customs Handling of Import and Export Freight (CHIEF) to declare goods.

There is also a separate scheme running concurrently, known as Customs Declaration Service (CDS).

From 1 October 2022 CHIEF will cease and importers must use CDS.

Exports

CHIEF is also currently used for exports and this will continue to a later date of: 31 March 2023.

Action

This change will significantly affect all businesses which import goods. Although it is likely that import agents will handle the majority of issues, an importer will be required to:

Failure to comply with these requirements will result in a business being unable to import goods.

VAT & Customs Duty – Valuation for import purposes

By   5 August 2022
0

Methods of calculating import value

There are six methods for calculating the value of imported goods to assess the amount of Customs Duty and import VAT a business to pay. The same value is also used for trade statistics.

All six methods are outlined below and should be tried in order. If Method 1 does not apply, try Method 2. If that does not apply, try 3 and so on. However, Method 5 can be tried before 4.

Method 1

The transaction value – the price payable to the seller. This is the most common valuation and is used in most cases.

Try Method 2 if there has been no sale of goods.

Method 2

The customs value of identical goods, produced in the same country as the imports.

Try Method 3 if there are no identical goods.

Method 3

The customs value of similar goods, which must be:

  • produced in the same country
  • able to carry out the same tasks and be
  • commercially interchangeable

Try Method 4 if there are no similar goods.

Method 4

The selling price of the goods (or identical or similar goods) in the UK.

Try Method 5 if there are no UK sales of the goods.

Method 5

The production cost of the goods, including the cost of any materials, manufacturing and any other processing used in production.

Try Method 6 if this production cost information is unavailable.

Method 6

Reasonably adapting one of the previous methods to fit unusual circumstances.

Legislation

In the UK valuation is covered by the Taxation (Cross-border Trade) Act 2018 & The Customs (Import Duty) (EU Exit) Regulations 2018 and The VAT Act 1994, Section 19.

What to include in the Method 1 calculation

If they are not already included in the seller’s price, the importer must add the costs of:

  • delivery to the EU border
  • most commissions (except buying commission)
  • royalties and licence fees paid by you on the imported goods as a condition of sale
  • containers and packing
  • any proceeds of resale the seller will receive
  • goods and services you provide to the seller for free or at a reduced cost – eg components incorporated in the imported goods, or development and design work carried out outside the EU and necessary for the production of the imports

If you import goods from a processor – ie a business that assembles or otherwise works on one or more sets of existing products to create your new imported products – transaction values can be built up by adding to the processing costs the value of any materials or components you provided to the processor.

What to exclude from your calculation

Items to be left out of the customs value if certain conditions are met include:

  • delivery costs within the EU
  • EU duties or taxes
  • taxes paid in the country of origin or export
  • quantity and trade discounts and those relating to cash and early settlement, that are valid at the time the goods are valued
  • dividend payments to the seller
  • marketing activities related to the imports
  • buying commission
  • export quota and licence costs
  • interest charges
  • rights of reproduction
  • post-importation work, eg construction or assembly
  • management fees

Further details here.

VAT Implications of Transfer Pricing – Valuation

By   21 April 2022
1

When can Transfer Pricing (TP) adjustments affect the application of VAT?

There is a continuing potential conflict between the way sales are valued. For TP purposes value is determined via arm’s length (open market value) versus the subjective value, ie; the price actually paid, for VAT purposes.

More detail on VAT valuation/consideration here.

Transfer Pricing

The arm’s length principle is the international transfer pricing standard that the Organisation for Economic Co-operation and Development (OECD) member countries have agreed, and which should be used for tax purposes by Multinational Enterprise Group (“MNE group”) and tax administrations, including the price, match comparable market conditions and that profits are fairly divided between the jurisdictions in which MNE operates.

According to the OECD TP Guidelines, by seeking to adjust profits by reference to the conditions which would have been obtained between independent enterprises for comparable transactions and under comparable circumstances, ie; in “comparable uncontrolled transactions” the arm’s length principle treats the members of an MNE group as entities operating separately rather than as inseparable parts of a single unified business. Because the separate entity approach treats the members of an MNE group as if they were independent entities, attention is focused on the nature of the transactions between those members and on whether the conditions thereof differ from those that would be obtained in comparable uncontrolled transactions.

VAT

It is not generally required for VAT purposes that the consideration which must be present in order for a transaction to be qualified as taxable, has to reflect the market value of the goods or services supplied. In fact, as to the concept of “consideration”, it is settled case law of the CJEU that the taxable amount for the supply of goods or services is represented by the consideration actually received for them.

It is an important area of tax and I recommend reading the EC Working Paper for any business or adviser involved in international supplies. It is also an interesting read for students of the tax technical side of such supplies.

We have a strong global structure of skilled advisers which are able to assist if you have any queries.

VAT: Fulfilment House Due Diligence Scheme registered businesses list

By   16 February 2022
1

HMRC has issued updated guidance for businesses which need to check whether an entity which stores goods in the UK on its behalf is registered with the Fulfilment House Due Diligence Scheme (FHDDS).

The published list is alphabetical order by company name.

The list should be used if you are a business that is not established in the EU to see if the business that stores your goods in the UK is registered with the FHDDS.

If your business is outsourcing or considering outsourcing its fulfilment operations, then the fulfilment house you are using or intending to use of must be legally accredited by HMRC to do so.

Businesses that must be registered

Businesses are required to be registered if it stores any goods where all of the following apply:

  • the goods were imported from a country outside the EU
  • the goods are owned by, or stored on behalf of, someone established outside the EU
  • the goods are being offered for sale and have not been sold in the UK before

It is illegal to operate outside of the scheme and any fulfilment company found doing so will be prevented operating a fulfilment business and may be subject to a £10,000 penalty and a criminal conviction.

VAT: Trading with the EU from 1 January 2022

By   14 December 2021
0

Further to my article on the new changes from next year, HMRC has published information on the rules of origin for trade between the UK and EU.

The Bulletin covers the rules of origin and the forthcoming changes to the requirement for supplier declarations to support proof of origin.

VAT: HMRC – Customs changes from 1 January and 1 July 2022

By   6 December 2021
0

Further to my article on new procedures, HMRC has issued a reminder of customs changes that come into effect on 1 January 2022.

It is now less than a month until full controls are introduced.

The Changes

  • Customs declarations

Businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls Most importers will have to make declarations and pay relevant tariffs at the point of import.

  • Border controls

Ports and other border locations will be required to control goods moving Great Britain and the EU. This means that unless goods have a valid declaration and have received customs clearance, they will not be able to be released into circulation, and in most cases will not be able to leave the port. From 1 January 2022, goods may be directed to an Inland Border Facility for documentary or physical checks if these checks cannot be done at the border.

  • Rules of origin for imports and exports

The UK’s deal called the Trade and Cooperation Agreement (TCA), means that the goods imported or exported may benefit from a reduced rate of Customs Duty (tariff preference). To use this a business will need proof that goods which are:

. imported from the EU originate there

. exported to the EU originate in the UK

  • Commodity codes

Commodity codes are used worldwide to classify goods that are imported and exported. They are standardised up to six digits and reviewed by the World Customs Organisation every five years. Following the end of the latest review, the UK codes will be changing on 1 January 2022. HMRC guidance is available on finding commodity codes for imports into or exports out of the UK which includes information on using the ‘Trade Tariff Tool’ to find the correct commodity codes.

  • Postponed VAT Accounting

A VAT registered importer is able to continue to use Postponed VAT Accounting (PVA) on all customs declarations that are liable to import VAT (including supplementary declarations).

Further changes from 1 July 2022

The following changes will be introduced from July 2022:

  • requirements for full safety and security declarations for all imports
  • new requirements for Export Health Certificates
  • requirements for Phytosanitary Certificates
  • physical checks on sanitary and phytosanitary goods at Border Control Posts

Businesses must be prepared for these changes and I recommend that an experienced representative is used.