Tag Archives: member-states

VAT: Consignment and call-off stock

By   5 May 2020
0

Consignment, call-off stock and sale or return goods

If a business is required to provide regular sales of goods to customers, a prudent business structure is to keep inventory in a warehouse near the customer, or which belongs to the customer. This is likely to reduce transport costs and provides quicker access to the goods thus reducing time in the supply chain. This practice is likely to increase after Brexit with the predicted delays at borders.  There are specific VAT rules for businesses which hold stock in foreign countries. They stipulate when, and what VAT should be charged, and if a business needs to VAT register as a non-resident trader in another EU country in which it is warehousing its goods.

Call off and consignment stock have been in the news recently (see below) so now seems a good time to consider what the terms mean, the differences and the VAT treatment applicable.

Differences 

There is often confusion over the terms; consignment and call-off stock, and they are sometimes used interchangeably. They are differentiated based on who controls access to, and use of, the goods. The difference determines the VAT requirements and compliance rules, so it is important to identify the actual arrangements a business has in place, or plan for the most beneficial outcome. Both of these measures involve the transfer of a business’ own goods – for the purposes of this article; cross-border. The transfer of goods within the same legal entity from one country to another is a deemed supply. This fact is sometimes missed, which can lead to problems.  The VAT rules differ from country to country and create legal uncertainty for businesses. Call-off stock is one of the four “quick fixes” announced by the EC aiming for uniformity. UK implementation here. However, reports mention difficulties and disharmony on a number of issues and these fixes are likely to be irrelevant in the case of a no-deal Brexit.

In summary

  • Consignment stock

Consignment stocks are created when a business transfers its own goods to another Member State to create a stock over which it has control and from which it makes supplies. Typically, there are multiple potential customers for consignment stock.

Note: Goods sent to an overseas customer on sale or return are treated in the same way as consignment stocks.

  • Call-off stock

Call-off stock is the transfer of goods by a business from one Member State to another to create a stock of goods from which its customers can ‘call-off’ ie; use and pay for the goods as and when they require them.

Not call-off stock

Goods delivered to storage facilities operated by the supplier, rather than the customer, should be treated as consignment stocks (see above). If stocks of goods are dispatched by a supplier for call-off by more than one customer, this is also likely to be consignment stock.

VAT treatment

Consignment stock

There is an initial deemed supply of own goods to form the stock which takes place in the Member State from which the goods are originally shipped. This is usually VAT free as a dispatch and the usual documentary requirements apply.

The place of subsequent supplies of the goods, once a buyer has been found (change of ownership) is usually the Member State in which the stock is held.

Because the business is transferring its own goods “to itself” in another Member State it will be making an acquisition of goods in that Member State. The business is likely to be liable to register for VAT there (or appoint a fiscal representative in the country of arrival) and to account for acquisition tax in the other Member State. Output tax will also be due (at the rate of VAT applicable in the Member State in which the goods are located) on the sale to a third party.

Consignment stock – reporting requirements

If a UK VAT registered business transfers goods to another Member State to create a consignment stock it must complete boxes 6 and 8 on the VAT return and an EC Sales List declaration reporting a value based on the cost of the goods – see HMRC Public Notice 725. The supply must be reported on an Intrastat dispatch Supplementary Declaration (SD) at the time the goods are dispatched.

As this is a supply of own goods, the value to be declared for Intrastat purposes is the amount that would have been realised in the event of a sale under normal market conditions. If the business is required to register for VAT in the partner Member State, it will have to comply with the VAT and Intrastat requirements in that Member State.

Call-off stock

As the customer has control of the goods in storage, is aware of stock movements, and may take stock whenever he requires this does not generally require the seller to VAT register in the foreign country as a non-resident trader. Such sales are treated as a “regular’ dispatch and the seller is required to show the customer’s VAT number etc on invoices and other documentation in order to treat it as VAT free in the usual way. With effect 1 January 2020 the time of supply for the intra-EC supply is the date the goods are called off by the customer. Before this date the time of supply was the date the goods were physically dispatched.

Call-off stock – reporting requirements 

The supply of call-off stock from the UK to a VAT registered business in another Member State is VAT free (subject to the normal rules). Boxes 6 and 8 of the VAT return and the EC Sales list declaration should be completed using a value based on the cost of the goods as above. An Intrastat dispatch Supplementary Declaration (SD) should also be completed at the time the goods are dispatched from the UK, again using a value based on the cost of the goods.

Latest

Following the introduction of the four VAT ‘Quick Fixes’ across the EU, HMRC published specific draft legislation regarding the ‘Call-off stock Quick Fix’. Additionally, HMRC has updated its policy paper on changes to the rules for call-off stock arrangements between the UK and EU Member States. In particular, new information on the accounting of small losses has been added.

Brexit

Unless a deal can be negotiated with the EC to replicate the current arrangements, movements between the UK and the EU27 will follow the third country rules. This means goods will be treated as imports with VAT and duty, plus a local VAT registration in most, if not all cases. Of course, this will likely mean delays and additional administration at borders, plus the addition of duty. A small ray of light (which will be of little compensation) is the removal of Intrastat and SD reporting.

This article considers UK suppliers selling goods outside the UK only. Please contact me if you have any queries on an overseas business using a consignment of call-off stock arrangement in the UK.

VAT and Customs Duty – Impact of No-Deal Brexit

By   4 October 2018
0

HMRC has published guidance on the likely implications of a No-Deal Brexit. The guidance states that it is “unlikely” that the UK will leave the EU without a deal, however, in the recent political climate, observers comment that a No-Deal scenario is increasingly likely (to put it conservatively). Consequently, business must be in a position to deal with a No-Deal from 29 March 2019. The guidance may be summarised as follows:

Current position

  • VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods are acquisitions (EU) or imports (non-EU)
  • no requirement to pay VAT when goods from the EU arrive in the UK. A business acquiring goods from the EU accounts for VAT on the goods in its next VAT return, offsetting input tax against output tax (acquisition tax, a simple “reverse charge” bookkeeping exercise)
  • no Customs Duty on goods moving between EU Member States
  • goods that are exported by UK businesses to non-EU countries and EU businesses are UK VAT free
  • goods that are supplied by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds
  • for services the place of supply (POS) rules determine the country in which a business needs to charge VAT

From 29 March 2019 with a No-Deal Brexit

  • the UK will continue to have a VAT system
  • the government will attempt to keep VAT procedures as close as possible to the current systems
  • acquisitions from the EU will become imports
  • imported goods from the EU (or elsewhere) will be subject to VAT deferment
  • Customs and Excise Duty formalities will now be required for EU imports
  • UK businesses supplying digital services are likely to be required to register for the one stop shop (MOSS) in a country within the EU
  • the rate of input recovery for providers of financial services (FS) and insurance may be improved
  • Low Value Consignment Relief (LVCR) is likely to be abolished for goods entering the UK as parcels, whether from within or outside the EU.
  • no requirement to comply with existing Distance Selling rules (exports of goods to individuals will be UK VAT free)
  • EC Sales Lists will not be required
  • Businesses need to take steps to examine their import and export procedures (!)

I have paraphrased some of the guidance for clarity and technical accuracy and the above points are not direct quotes. 

Commentary

The apparent good news is that UK businesses importing goods from the EU will not have to pay VAT on the date that the goods enter the UK, but rather, will be able to account for the VAT later via a deferment system, presumably similar to the one in place for current non-EU imports. Helpful for cashflow, but an unwanted additional complexity, especially for small businesses. A concern is that HMRC cannot deal with the documentation requirements even before Brexit see here

A big negative for UK business is the fact that customs declarations and the payment of any other duties will now be required for imports from the EU – in the same way as currently applies when importing goods from outside the EU. Consequently, for goods entering the UK from the EU

  • an import declaration will be required
  • customs checks may be carried out
  • customs duties must be paid.

This is an additional complication and a cost to a business which is currently able to bring goods into the UK from the EU without any of these declarations, payments or inspections. This is likely to lead to additional delays at the border and will certainly increase administration and costs. Whether this will encourage UK businesses to purchase more goods from UK suppliers remains to be seen. It is worth mentioning that HMRC has also said that UK  importers need to take steps apply for an Economic Operator Registration and Identification Number (EORI) for businesses which do not already have one. Details here

Brexit may provide a ray of sunshine for FS and insurance suppliers (well for VAT anyway, the commercial impact may be somewhat different). In the event of a No-Deal Brexit, for UK FS and insurance providers, input VAT deduction rules in respect of services to the EU may be changed. Although no details are provided, it appears to me that input tax attributable to these supplies will be treated similarly to those currently provided to recipients outside the EU. Which will broadly mean that those supplies which would be exempt if provided in the UK would provide full input tax recovery if the recipient belongs anywhere outside the UK. This will be very good news for The City.

LVCR currently relieves goods worth under £15 which come into the UK from outside the EU from UK VAT. Its abolition means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are zero-rated from VAT) if the value is under £15. An unwelcome and apparently unnecessary change.

Generally

It is prudent for businesses to consider how their imported goods will be classified and how they will submit import declarations in the result of a No-Deal Brexit. HMRC suggests that importers may want to consider looking at suitable commercial software and, or, engaging a commercial customs broker, freight forwarder or logistics provider. We advise contacting the relevant providers sooner, rather than later, to establish what you, or your client’s business may require. Of course, all of the above will increase the potential of a business receiving penalties and interest if it gets it wrong.

If you would like to discuss any of the above, please contact me, or a member of my team. Readers that know me, may admire my restraint in commenting, politically, on Brexit…

As I often find myself saying recently – good luck everybody.