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This publication is available at https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2019-vat-import-vat-deducted-as-input-tax-by-non-owners/revenue-and-customs-brief-2-2019-vat-import-vat-deducted-as-input-tax-by-non-owners
This brief explains the correct treatment for the deduction of import VAT paid by a taxable person who is not the owner of the relevant goods.
The legislative basis for input tax recovery are set out in sections 24, 25, and 26 of the VAT Act 1994. The VAT Input Tax guidance has been updated to give details on the correct procedure for deduction of import VAT and can be found in VIT31100 - import VAT – Deduction of Input tax.
Section 4 of this brief also explains what actions HMRC will take in relation to incorrect claims for previous periods.
You should read this brief if you are:
- a non-owner who has reclaimed import VAT on goods imported into the UK
- a ‘ toll operator’
- advisers or agents dealing with businesses importing goods to the UK
HMRC is aware of incorrect treatment by businesses whereby import VAT has been incorrectly deducted as input tax by non-owners of the goods. This can present itself in two ways.
3.1 Toll operators
Toll operators all operate a similar business model, they import goods (for example pharmaceutical goods), process them and distribute them within the UK for clinical trials.
The toll operator does not take ownership of the goods and does not resell them. They may however, distribute the goods onwards at the instruction of the owner (their customer). The only supply by the toll operator is of its services to its client (the owner of the imported goods).
Title to the goods at all times remains with their overseas customers (the owners). However, the toll operator acts as ‘importer of record’ on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate (C79).
HMRC has become aware that a number of UK toll operators who have paid import VAT on behalf of overseas customers have also claimed a corresponding deduction for input tax under section 24 of the VAT Act 1994. However, there is no provision in UK law for such deduction.
There is no evidence to suggest that the businesses concerned have knowingly applied the wrong treatment. In all cases seen by HMRC, the toll operator has dealt with the importation and paid or claimed the import VAT to provide an administrative and cash flow benefit to their overseas customers, as part of the overall service they provide.
The correct procedure is for the owner to be the importer of record and reclaim the import VAT, either in accordance with section 24 of the VAT Act 1994 (if registered for VAT in the UK) or under the Thirteenth VAT Directive (86/560/EEC).
3.2 Where title has passed before import into the UK
In some situations, businesses sell on the goods just before importing them into the UK so ownership and title has passed to the new owner, however the business that sold the goods acts as ‘importer of record’ on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate (C79).
The correct procedure is for the new owner of the goods to be the importer of record and reclaim the import VAT on the C79 and not the previous owner, in accordance with section 24 of the VAT Act 1994.
4. Action needed
From 15 July 2019, HMRC will only allow claims for input tax deduction made using the correct procedures. This allows an appropriate transitional period for businesses to make any necessary changes to ensure the correct procedures are used going forward.
HMRC recognise that, in the case of toll operators, if the correct procedures had been followed there would be full recovery of VAT by overseas customers, so the net revenue position would have been nil. In some cases import VAT relief (for example temporary importation relief) would have been available at the time of importation, if claimed.
The time limit for making Thirteenth Directive claims is within 6 months of the ‘prescribed year’ in which the VAT was charged. For some earlier periods, Thirteenth Directive claims are no longer possible, meaning that any action to correct the position would lead to a VAT cost for the UK toll operators or their customers.
In the case of owners taking ownership just before to importation, if the correct procedures had been followed the owners would have been entitled to recover the import VAT as input tax (subject to the normal rules).
HMRC accepts that as previous guidance was not clear on the correct procedure, businesses in these situations have been acting in good faith. HMRC will not pursue historical VAT deduction where the VAT could have been recovered in full by the owner of the goods at the time of importation as long as there is no risk of duplicated claims. In this context ‘historical’ means deductions made before 15 July 2019.
This will apply to any affected businesses that meet all the 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