Tag Archives: vat-goods

VAT – A Christmas Tale

By   6 December 2022
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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 & Customs Duty: Goodbye CHIEF, hello CDS

By   23 August 2022
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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
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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: Fulfilment House Due Diligence Scheme registered businesses list

By   16 February 2022
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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.

A VAT Did you know?

By   30 October 2020
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Latest from the courts.

The rolls used in Subway’s hot sandwiches are not bread. According to a recent ruling by Ireland’s Supreme Court, because of the high level of sugar in the rolls, they cannot be taxed as bread, so the VAT zero rate cannot apply.

VAT: New guidance on the border with the EU post-Brexit

By   14 October 2020
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This month the government have issued new guidance: The Border with the European Union Importing and Exporting Goods on the Border Operating Model. This provides comprehensive guidance on the movement of goods from 1 January 2021 and adds to previous guidance.

This is important information for any business moving goods between GB, the EU and NI and needs to be considered for tax planning and general preparation for Brexit. These rules will likely come into force regardless of whether the UK has negotiated an agreement with the EU.

The introduction comes in three stages:

  • Stage One – January 2021
  • Stage Two – April 2021
  • Stage Three – July 2021

Stage One

Business will need to:

  • understand the requirements of EU Member States. The necessary processes must have been done and documentation completed to comply with these requirements
  • obtain a GB EORI number to move goods to or from the UK
  • if undertaking any EU customs processes, businesses will need an EU EORI
  • importers; check which goods are on the controlled goods list- if they are on the controlled goods list, a full customs declaration is required
  • if importing non-controlled goods, decide whether to delay the customs declaration for up to six months or complete full customs declarations on import
  • decide how to complete customs formalities: Most businesses are expected to use a customs intermediary
  • consider obtaining a Duty Deferment Account (DDA). A DDA allows holders to delay customs duty, excise duty and import duty, to be paid once a month rather than on individual consignments
  • check to see if a facilitation would be of benefit. There are a number of facilitations, including the Common Transit Convention
  • if importing live animals or high-priority plants, business needs to be prepared for submitting additional documentation and checks taking place at point of destination
  • exporters; be prepared to submit customs export declarations
  • hauliers; be ready to use the “Check an HGV is ready” service

Stage Two

If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:

  • to submit pre-notification and the relevant health documentation

Stage Three

Businesses must:

  • meet full customs requirements including submitting declarations, regardless of whether it is a controlled or a non-controlled good
  • pay VAT and excise duty where necessary
  • submit safety and security declarations
  • be prepared for customs compliance checks either at port or an inland site
  • be prepared for relevant SPS goods to enter GB via a Border Control Post either at port or an inland site, accompanied by sanitary and phytosanitary (SPS) documentary requirements

General

From 1 January 2021

  • Customs Declarations – Importers and exporters will have to complete UK and EU customs declarations after the end of the transition period. Some locations will require pre-lodgement of customs declarations prior to the movement of goods, which will particularly affect ‘roll on-roll off’ (RoRo) movements
  • Customs Duties – Importers will need to ensure that any customs duties applicable to their goods under the new UK Global Tariff are paid. Importers will need to determine the origin, classification and customs value of their goods. There are options available to defer any payment that is due
  • VAT will be levied on imports of goods from the EU, following the same rates and structures as are applied to Rest of World (RoW) imports. VAT registered importers will be able to use postponed VAT accounting. Non-VAT registered importers have the same options available to report and pay import VAT as they do for customs duties

Businesses will need to review their processes for dealing with cross-border goods, both between the EU and Northern Ireland. This includes; customs declarations, compliance, provision of data, obtaining a duty deferment account and GB/EU EORI numbers as necessary. We also advise liaising with suppliers and customers to ensure, as far as possible, that transactions are as seamless as possible in these challenging times.

VAT: Crowdfunding – What is taxable?

By   9 April 2020
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What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.

VAT Treatment

The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.

Examples

Donations

  • where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar

Goods and/or services

  • where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due

Combination

  • where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable

Investment

  • where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes

Royalties

  • if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due

VAT registration 

If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £85,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.

Input tax recovery

If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities.

Commentary

There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.







Changes to the treatment of cross-border movement of goods from 1 May 2016

By   8 October 2015
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How will goods cross EC borders post UCC? 

HMRC has updated its guidance notes on the Union Customs Code (UCC) which is being introduced across the EC on 1 May 2016.

Details here

Main points

  • The UCC is a revision of the Modernised Customs Code (MCC) and there will be a number of changes to how goods cross EU borders.
  • Some transitional arrangements will operate until 2020.
  • Mandatory guarantees for most special procedures and temporary storage (TS) – this only applies to new authorisations.
  • The ability to make some movements under TS rather than national transit or Electronic Transit System (ETS) – formerly New Computerised Transit System (NCTS).
  • The removal of the earlier sales provisions relating to valuation – but there are some transitional arrangements.
  • All communications between customs authorities and economic operators must be electronic.
  • Valuation: The earlier sale facility will be withdrawn and replaced by a last sale only rule. 
  • Under the UCC there will be some circumstances where the provision of a guarantee is mandatory.

  • Royalties and licence fees – Currently, for a royalty fee to be liable to duty it must: relate to the imported goods, and be paid as a condition of sale of those imported goods. Under the UCC, royalties and licence fees will generally be paid as a condition of the sale of the goods and should be included in the customs value.

Some procedures and reliefs will cease or change on 30 April 2016, these are:

  • The €10 waiver of customs duty for free circulation customs declarations – where customs duty is payable no de-minimis exemption will apply – this doesn’t affect any Community System of Duty Reliefs (CSDR) duty reliefs.
  • Goods being declared to Onward Supply Relief (OSR) can only be entered using a full customs declaration or the Simplified Declaration Procedure (SDP).
  • The use of Information Sheets for Special Procedures (INF) documents with an Entry in Declarant’s Records (EIDR).
  • Inward Processing Drawback (IP (D)) and Low Value Bulking Imports (LVBI) authorisations will no longer be valid and these authorisations can’t be used to import goods regardless of any expiry dates shown on your authorisations.
  • Processing under Customs Control (PCC) authorisation holders will be given an Inward Processing (IP) authorisation number which must be used for new importations after 30 April 2016.
  • Type D customs warehousing authorisation holders will be given a new authorisation number with a prefix of C (for type D authorisation), or E (for a type E warehouse with type D rules of assessment) – these must be used for entries to customs warehouses after 1 May 2016, the normal debt rules of assessment will apply.
  • Goods being declared to LVBI will only be entered using an SDP authorisation.

System changes

HMRC expects that some changes to economic operators’ systems will be needed. However this will depend on which authorisations are held and what procedures or processes individual businesses use. A plan for the major IT changes is already in place.

Economic Operator Registration and Identification (EORI)

There are no changes to the EORI process. It is a requirement for all economic operators (such as businesses) involved in international trade to be registered and to have an EORI number. You’ll need to have an EORI number to be able to apply for any customs authorisations, approvals or decisions. For details on EORI see here