Import VAT recovery changes now in force – are you ready?

What is happening and when?

HMRC announced a change regarding business that are noted as the ‘importer of record’. If those businesses are not the actual legal owner of goods on import, then HMRC will no longer allow them to recover Import VAT when bringing goods into the UK. The announcement came in the Revenue and Customs Brief 2 (2019): VAT – import VAT deducted as input tax by non-owners on 11 April 2019.

Historically, ‘importer of records’ only needed to be using the goods for the ‘purpose or course of their business’ to recover any import VAT (via a C79 certificate).

These changes came into force on Monday 15 July 2019, following a short transition period.

Who will it impact?

These changes will have a significant impact for many businesses importing goods.

In particular, it will impact businesses who have involvement in processing someone else’s goods. This is an area where HMRC will most likely initially focus its compliance activities.

The key groups impacted are:

  • Non-owners who has reclaimed import VAT on goods imported into the UK.
  • Toll operators.
  • Businesses who regularly use freight forwarders/shipping agents.
  • Companies which operate with UK subsidiaries or a UK parent which act as the ‘importer of record’ for group companies.

What is the impact?

As a result of the changes, many businesses may now need to:

  • Restructure contractual arrangements and become the legal owner of the goods and act as the ‘importer of record’ in order to be able to recover Import VAT.
  • Register for VAT in the UK.
  • Alternatively, where ineligible for UK VAT registration, businesses may have to rely on making a VAT refund claim under the Thirteenth VAT Directive (86/560/EEC) where other reliefs are not available.

Businesses will now need to ensure that they understand the changes and the impact on their operating models. This is particularly for non-UK/EU businesses that have historically had little exposure to the complexities of UK VAT (including VAT registration eligibility and obligations, import reliefs and Thirteenth VAT Directive refund claims). Failure to do so could result in Import VAT becoming a hard cost. If there was a recovery of Import VAT in error, there is potential for HMRC to issue penalties and interest.

Historic liabilities

For imports pre-15 July 2019, HMRC accepts that their previous guidance was not clear on the correct procedure. However, this does not mean HMRC will automatically not pursue impacted businesses for historic incorrect recovery.

HMRC has stated it will not pursue for historic periods, but only for businesses meeting HMRC’s qualifying criteria, such as;

  • VAT deductions were made in genuine error, through misinterpretation of the legislation or guidance.
  • The owner of the goods would have been entitled to full import VAT recovery.
  • HMRC are satisfied that there has been no VAT deduction by another person.

Whilst helpful, the criteria is strict and not all business will be able to rely on this.

Immediate actions for impacted businesses

  1. Establish if the business is the legal owner of imported goods where Import VAT has been recovered.
  2. Undertake a review for any historic exposure.
  3. Review current procedures on reclaiming VAT on imports to ensure application of the correct treatment going forward.
  4. Have early conversations with suppliers and customers should current arrangements need amending. This is to ensure the operating model does not lead to unintended Import VAT loss/unnecessary compliance burden, and that this reflects in contractual terms and Incoterms.

How can we help?

Our team have had direct involvement in the ongoing developments in this area at an operational and HMRC policy level.

We can assist businesses in evaluating the impact, assessing historic exposure and developing strategies for minimising the financial and practical impact.

For more information please contact Hydeam Sulton on 0191 285 0321 or email hydeam.sulton@taitwalker.co.uk