VAT on goods exported from the UK can be Zero rated if certain conditions are met.
VAT on goods exported from the UK – How does it work?
Zero rating of VAT on goods exported from the UK
VAT is a tax levied on goods and services consumed in the UK. When goods are exported they are ‘consumed’ outside the UK and to impose VAT on such goods would be contrary to the purpose of the tax. Therefore, the supply of exported goods is zero-rated provided the conditions in this notice are met.
A zero-rated VAT supply is one which is subject to VAT but where the VAT is at 0%.
Place of supply & VAT on goods exported from the UK
Goods are normally treated as being supplied where they are located at the time of supply and not where the supplier is located.
- – outside the UK are not exports and the supply is outside the scope of UK VAT
- – in Northern Ireland that are sent to an EU destination should follow the rules for VAT on movements of goods between Northern Ireland and the EU
- – in Great Britain that are sent to an EU destination should follow the export rules in this notice
The ‘exporter’ for VAT on goods exported from the UK
The exporter is the person who, for VAT purposes either:
- – supplies or owns goods and exports or arranges for them to be exported to a destination outside the UK or EU (read section 2.8 Direct exports)
- – supplies goods to an overseas person, who arranges for the goods to be exported to a destination outside the UK or EU (read section 2.9 Indirect exports)
Special rules exist if an export is preceded by multiple transactions (read paragraph 4.1).
Overseas person consideration for VAT on goods exported from the UK
Your customer is an ‘overseas person’ if they are:
- – a person not resident in the UK
- – a business that has no business establishment in the UK from which taxable supplies are made
- – an overseas authority
Appointing someone to handle your export transactions for VAT on goods exported from the UK
You can appoint a freight forwarder, shipping company, airline or other person to handle export transactions and produce the necessary customs export declarations on your behalf. At all times the responsibility to make sure the rules set out in this notice are followed lies with you, even if you employ an agent.
For information on customs procedures, check if you need to declare goods you bring into or take out of the UK.
Agent obligations for VAT on goods exported from the UK
The freight forwarder, shipping company, airline or other person appointed by you, the exporter, or your overseas person should:
- – take reasonable steps to make sure that the goods are as described by the exporter
- – make sure that the necessary pre- or post-shipment customs formalities are completed
- – make sure that the goods are exported within the time limits specified by the exporter
- – keep records of each export transaction
- – obtain or provide valid evidence of export (read sections 6 and 7) and send it to the exporter once the goods have been exported
Countries that are part of the UK for VAT purposes
The UK is made up of England, Scotland, Wales, Northern Ireland and the waters within 12 nautical miles of their coastlines. Great Britain is made up of England, Scotland and Wales.
Although the Isle of Man has its own VAT authority, for VAT purposes, references to Great Britain include the Isle of Man, and goods sent to the Isle of Man from Great Britain are treated as domestic supplies for VAT purposes.
Different rules apply for supplies from Northern Ireland to Great Britain and the Isle of Man.
The Channel Islands are not part of the UK for fiscal (VAT) purposes. Supplies of goods sent to the Channel Islands are regarded as exports for VAT purposes and may be zero-rated if the conditions set out in paragraph 3.3 or 3.4 are met.
For information about evidence of export of goods to the Channel Islands, read paragraph 7.13.
Direct exports for VAT on goods exported from the UK
For VAT purposes, a direct export occurs when you, the supplier:
- – send goods to a destination outside the UK
- – are responsible either for arranging the transport yourself or appointing a freight agent.
The goods may be exported by any of the following means:
- – in your baggage (read paragraph 7.3 and 7.4)
- – in your own transport
- – by rail, post or courier service
- – by a shipping line, airline or freight forwarder employed by you and not by your customer
Indirect exports for VAT on goods exported from the UK
An indirect export take place when the following occurs:
- – an overseas person or their agent collects goods from the supplier in the UK
- – the overseas person or their agent takes these goods outside of the UK
This applies to goods that are collected ex-works or where an overseas person arranges for their collection. Overseas person is defined in paragraph 2.4.
Indirect exports of personal goods in accompanied baggage do not qualify for zero rating. Personal goods means goods that are not intended for business use by an individual.
If your business customer is not established in the UK, the supply is eligible for zero rating as an indirect export even if that customer is VAT registered in the UK.
If you supply goods to an overseas person who is also established in the UK
Where goods are supplied to a customer established in the UK your supply cannot be zero-rated, but subsequent removal by the customer may be treated as the export of own goods — read paragraph 2.13.
The time of supply of exported goods to ascertain the status of VAT on goods exported from the UK
The time of supply determines when a supply of goods or services is treated as taking place. This is called the tax point. In most cases the time of supply will be the earlier of either the date you:
- – send the goods to your customer or your customer takes them away
- – receive full payment for the goods
For further information on tax points see Notice 700, section 14.
For the treatment of deposits and progress payments, read paragraph 11.5.
Exports where there is no taxable supply for VAT on goods exported from the UK
You need not account for VAT if you:
- – supply and export goods which you are to install outside the UK for your customer (the supply takes place in the country where the goods are installed)
- – export goods temporarily for exhibition or processing
- – export goods on sale or return, where the goods remain your property until they are sold
However, you must still hold valid proof of export (read sections 6 and 7) to demonstrate to us how you disposed of the goods. You must also make an import declaration for any goods returned to the UK.
Transfer your business’ own goods
This is for movements of stock or assets between branches where there is no connected supply.
When transferring goods from your UK business to your branch outside the UK you need proof of export as evidence that you have transferred your goods.
A transfer of goods from your UK business to a branch outside the UK is not a supply, but you must make an import declaration for any goods returned to the UK and retain the details. You can deduct any related input tax subject to the normal rules but do not include the value of any transferred goods as an output in box 6 of your VAT Return.
Goods accidentally lost, destroyed or stolen before export
You must account for VAT on goods destined for export which have been accidentally lost, destroyed or stolen in the UK as follows:
- – before you supplied them — no VAT is due
- – you supplied them for direct export — no VAT is due provided that evidence of loss, destruction or theft is held, for example an insurance claim or a police investigation
- – you supplied them for indirect export — VAT is due at the appropriate rate if the goods have been delivered to or collected by the overseas person, or their agent, in the UK
VAT on Goods Exported from the UK & MCL Accountants
Contact MCL Accountants on 01702 593 029 if you have any queries about VAT on goods exported from the UK or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.