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.