How to account for VAT on services when a vehicle, ship or aircraft is provided, together with a driver or crew for the transport of goods.
This notice cancels and replaces VAT Notice 744B (December 2010).
1.1 This notice
It explains in detail the VAT liability of freight transport and related services.
The technical content has been updated to take account of developments in policy and changes in the law since the December 2010 edition.
A new paragraph 1.3 has been added to reflect revised policy on the treatment of hiring means of transport and supplies of transport services.
Paragraph 3.1 has been updated to reflect the amendment to the law regarding the supply to a business customer of the transport of goods and related services which takes place wholly outside the UK and EU.
Section 8 has been updated to reflect HMRC revised policy on goods handling services for aircraft provided at places that aren’t customs and excise airports.
Other minor changes have been made.
1.2 The definition of ‘freight’
- goods or cargo
- unaccompanied vehicles
- vehicles transported on ships, which are charged at a ‘driver accompanied’ rate
1.3 The meaning of ‘freight transport services’
Freight transport services are supplied when a vehicle, ship or aircraft is provided together with a driver or crew for the carriage of goods.
If you hire a vehicle, ship or aircraft without a driver or crew, you’re supplying a means of transport, not freight transport services. If you hire a vehicle, ship or aircraft with a driver but do not transport anything anywhere, you are not supplying a transport service.
VAT Notice 744C: ships, aircraft and associated services explains hiring in more detail.
1.4 How to determine the VAT treatment of freight transport and related services
You have to consider all of the following 3 points in order:
- the status of your customer, see section 2
- the place of supply of your services, which follows the status of the customer, see section 3
- the liability of the supply, which follows the place of supply of your services, see section 4
2. Business status of your customer
The first step in determining the place of supply of your freight transport and related services is to establish whether your customer is ‘in business’, or not, for the purpose of receiving the supply.
Whether your customer is ‘in business’ is a wide test and is not confined to customers within the UK or the EU, but anywhere in the world, nor is it confined to customers that are VAT-registered.
A more detailed explanation and examples of when a customer is, or is not ‘in business’, and suggestions for evidence to be held can be found in VAT Notice 741A: place of supply of services.
3. Place of supply
3.1 Customer ‘in business’
Freight transport and related services fall under the ‘general rule’ when supplied to customers ‘in business’. The general rule is that the place of supply of services to a person who’s ‘in business’ is the place where the customer belongs for the purposes of receiving your supply.
But the place of supply of these services that would have a place of supply in the UK under the general rule, but which take place wholly outside the UK and EU, is treated as taking place where performed.
For example a customer is ‘in business’ in:
- France - the goods move within France, so the place of supply of freight transport and related service is France
- Australia - the goods move from Australia to the UK with related transport services undertaken in France, so the place of supply of freight transport and related service is Australia
- UK - the goods move from Canada to China, so the place of supply of freight transport and related service is Canada, China and international waters or airspace
- The Netherlands - the goods move from Italy to Ireland, where you supply a related transport service, so the place of supply of freight transport and related service is The Netherlands
3.2 Customer not ‘in business’
The place of supply of freight transport and related services supplied to customers who are not ‘in business’ is as follows:
- from the UK or EU to a third country, where the transport is performed in proportion to the distances covered
- intra-EU transport (and also including the UK), where the transport begins
- related services, where physically performed
For example a non-business customer is in:
- France - the goods move within France, the place of supply of freight transport and related service is France
- Australia - the goods move from Australia to the UK, with related transport services undertaken in France, the place of supply of freight transport and related service is Australia, the UK and any other country transited, the related transport services are supplied in France
- UK - the goods move from Canada to China, the place of supply of freight transport and related service is Canada, China and international waters or airspace
- The Netherlands - the goods move from Italy to Ireland, where you supply a related service, the place of supply of freight transport and related service is supplied in Ireland
3.3 Intra-EU transport that transits a non-EU country
Freight transport between the UK and also EU member states that involves transiting a non-EU member state (for example, Sweden to UK through Norway) is treated as intra-EU transport.
3.4 Position of a sub-contractor to the main supplier of freight transport or related services
If you’re a sub-contractor supplying freight transport or related services to a main contractor, the place of supply of your services is determined by the status of your immediate customer.
For example, if a French company moves goods from Italy to Ireland for a UK company, the place of supply is the UK, as that’s where the customer belongs. If you’re sub-contracted to move these goods from Dover to Holyhead for the French contractor, the place of supply of your service is France, as that’s where your customer belongs.
4. VAT liability
4.1 Place of supply is the UK
If the place of supply of freight transport or related services is the UK then the supply is standard rated, except for:
- the supply of transport or related services connected with an import to or export from the EU (see section 5)
- the actual movement of goods from, to or between the islands of the Azores or Madeira, or the related service is physically performed on these islands (see section 7)
- when the supply is of handling or storage of ship or aircraft cargo (in certain circumstances) (see section 8)
- when the supply is zero-rated
4.2 Place of supply is outside the UK
If the place of supply is outside the UK, then the supply is outside the scope of UK VAT and there is no VAT liability within the UK. But, you’ll be able to recover any input tax incurred in making the supply, subject to the normal rules.
Further information on input tax can be found in the VAT guide (Notice 700).
You may have a liability to VAT register in any EU member state where you make the supplies (see paragraph 4.3).
4.3 Accounting for VAT
The procedure for accounting for VAT and who accounts for it will depend on the circumstances of the transaction.
If the supplier is located in the same EU member state as the place of supply, the supplier charges and accounts for any VAT due as a domestic supply.
If the place of supply moves to an EU member state because that’s where a customer who’s ‘in business’ is located, the customer must account for the VAT as a reverse charge. See section 11 for more information on reverse charges.
If the place of supply moves to where the transport of the goods begins (for a person not ‘in business’), the supplier may have to register for VAT in the EU member state of supply. See VAT Notice 700/1: should I be registered for VAT if the place of supply is the UK.
If the place of supply is outside the EU, the supply is outside the scope of VAT in any EU member state.
5. Import, export and non-EU freight transport
5.1 The meaning of ‘import, export and non-EU freight transport’
For the purpose of this section import, export and non-EU freight transport means the transport of goods:
- between the UK or EU and non-EU countries
- wholly outside the UK and EU
5.2 Place of supply of this freight transport
5.3 VAT liability of import, export and non-EU freight transport
Where the place of supply is the UK, zero rating applies to:
- the supply of transport of goods from a place within to a place outside the UK and EU and vice versa
- the transport, handling and storage of goods, when supplied in connection with a journey from the place of importation to their destination, either within the UK or within an EU member state (to the extent that those services are supplied in the UK)
- the transport, handling and storage of goods, when supplied in connection with a journey from their origin, either within the UK or within an EU member state to the place of export (to the extent that those services are supplied in the UK)
Handling and storage is covered in section 8.
5.4 The meaning of ‘destination’ and ‘origin’
‘Destination’ is the furthest specified place in the UK or EU member state to which the goods are consigned at the time of importation. It’s the place stated on the consignment note or any other document by means of which the goods are imported.
These are often known as the delivery terms, which are explained further at paragraph 5.5. When that place is unknown, the destination is the place of importation.
|Goods consigned to||Destination is|
|Goods arriving at Felixstowe and consigned to Birmingham||Birmingham|
|Goods arrive at Heathrow to await further instructions||Heathrow|
‘Origin’ is the place from within the UK or EU member state from which the goods are first consigned for export. When that place is unknown, the origin is the place of exportation.
|Goods consigned from||Origin is|
|Goods for export consigned from Newcastle to Sydney||Newcastle|
|Goods moved from Manchester to Southampton before they’re consigned for export||Southampton|
5.5 Delivery terms
The main delivery terms used in the UK are:
|EXW||Ex works||The goods are made available at the seller’s premises (for example, works, factory, warehouse and so on) and the buyer bears all the costs (loading, transport and so on) from that point on|
|DDU or DDP||Delivered Domicile (fully delivered)||The seller delivers the goods to a named place in the country of arrival (for example, the buyer’s premises or a particular warehouse) and is responsible for all costs involved in doing so|
|FOB||Free on board at the port of departure||The seller bears the cost of transporting the goods to the port in the country of exportation. The buyer is responsible for all costs from that point|
|CIF||Cost, insurance and freight to the port of arrival||The seller pays all the costs and freight charges necessary to get the goods to a port or airport in the UK. The buyer is responsible for the charges associated with domestic transport from the port or airport|
A complete list of delivery terms is given in VAT Notice 252: valuation of imported goods for customs purposes, VAT and trade statistics.
5.6 Examples of services connected with imports and exports that are zero-rated
|To the extent that the place of supply is the UK||It is|
|transport is from Birmingham to Dover of goods
to be exported from France to Algeria
|zero-rated - it’s a supply in connection with an export from the EU|
|transport is from the USA to Ireland||zero-rated - it’s a supply of transport from outside to within the EU|
|storage of goods being exported from
The Netherlands to Norway
|zero-rated - it’s a supply of storage in connection with an export from the EU|
|transport of goods from South Africa to Spain
of goods consigned to Switzerland
|zero-rated - it’s a supply of transport into the EU, notwithstanding that the goods are destined for Switzerland|
5.7 Documentary evidence needed to show that your services form part of an import or export movement
If you provide such services you should hold satisfactory evidence that you’re providing a service connected with a specific import or export of goods in the form of commercial documentation.
The list is not exhaustive. If you have difficulties in obtaining these documents, you should contact our VAT: general enquiries.
Details about ‘satisfactory evidence’ for exports are also given in VAT on goods exported from the UK (Notice 703).
|Main forms of documentary evidence include||Additionally, a combination or all of these may provide suitable evidence|
|Contracts or agreements||Inter-company correspondence|
|Consignment notes||The customer’s order documentation|
|Bills of lading||Payment details|
|Certificates of shipment||Sales invoices|
|Air or seaway bills||Advice notes|
|Customs declaration forms C88 (SAD)|
5.8 Services connected with imports or exports not zero-rated
The following services are not zero-rated.
Services unconnected to a movement of goods from a place outside the UK or EU to a place within the UK or EU or vice versa.
The transport of goods after their arrival at the destination. For example, the transport after arrival at a warehouse (the destination they were consigned to) where the customer is known but the further destination elsewhere in the UK is not known. When the goods are at some later date called off for consignment to (say) a branch, the transport and any related services cannot be zero-rated.
Services connected with goods which have not specifically been consigned for export at the time of transport.
The handling of goods after they’ve been unloaded at the destination.
The storage of goods at the destination, unless the storage meets the conditions in section 8.
6. Related transport services
6.1 What are related transport services
These include the following services when they relate to the transport of goods:
- loading, unloading or reloading
- opening for inspection
- cargo security services
- preparing or amending bills of lading, air or sea waybills and certificates of shipment
- packing necessary for transport
6.2 Place of supply of related transport services
6.3 Accounting for VAT on related transport services
The procedures for accounting for VAT are set out in section 4.
7. Intra-EU freight transport and associated services between the UK or EU member states and the Azores and Madeira
7.1 Freight transport supplies
This section covers the transport of goods:
- to or from the Azores or Madeira to a place elsewhere in the UK or EU
- between the Azores and Madeira
7.2 Place of supply
This is the same as the place of supply of intra-EU freight transport, see section 3.
7.3 VAT treatment
VAT is zero-rated to the extent that the transport services are treated as supplied in the UK. This includes transport related services and intermediary services.
8. Handling and storage services in connection with ship and aircraft cargo
8.1 Handling and storage services
Here are some examples of handling and storage services:
- cargo security services
- container handling for which a box charge is made
- loading stores and discharging empties
- loading, unloading, reloading, stowing, securing and shifting cargo
- movement of goods to or from a ship by lighter
- preparing or amending bills of lading, air or sea waybills and certificates of shipment
- preparing or amending customs entries
- presenting goods for customs examination
- sorting, opening for inspection, repairing and making good, weighing and taring, taping and sealing, erasing and re-marking, labelling and re-numbering, tallying, checking, sampling, measuring or gauging of goods
- stevedoring and porterage
- survey of cargo (including damaged cargo)
8.2 How you should treat handling and storage services
The handling and storage of ship and aircraft cargo may be zero-rated, provided the service is physically performed in the UK.
For ship cargo, the service must be performed:
- in a port (see paragraph 8.3)
- on land adjacent to a port (see paragraph 8.3)
- in a transit shed (see paragraph 8.5)
For aircraft cargo, except where the aircraft is used by an airline operating for reward chiefly on international routes (see VAT Notice 744C: Ships, aircraft and associated services), the service must be performed in a customs and excise airport (see paragraph 8.4).
- the grant of a licence to occupy land to store goods in a specific area, as distinct from the service of storing them, may be exempt from VAT (see VAT Notice 742: land and property)
- see paragraph 5.3 for handling and storage services relating to imported and exported goods
- see paragraph 8.7 for related services that are excluded from zero rating
8.3 The meaning of ‘port’ and ‘land adjacent to a port’
‘Port’ means any port appointed for customs purposes. It includes all UK territorial waters up to the mean high water mark and the inland water as far as the tide flows, together with associated docks and harbours.
The water of the Manchester Ship Canal between the Mersey and Manchester is also a customs port.
The legislation defining the ports does not include any land, so ‘land adjacent to a port’ means the immediate quayside and any warehousing or storage facilities thereon.
8.4 The meaning of ‘customs and excise airport’
‘Customs and excise airport’ means an airport designated for the landing or departure of aircraft for the purposes of the Customs and Excise Acts by an order in council. The limit of a customs and excise airport is normally the boundary of the airport itself. A list of customs and excise airports can be found in volume 3 of the Customs tariff.
8.5 The meaning of a ‘transit shed’
A transit shed is a place approved by customs for the deposit of goods having the status of goods in temporary storage. Goods are in temporary storage until they’re assigned to a customs-approved treatment or use. An example of the latter is placing the goods under a customs procedure, such as entry to ‘free circulation’.
Further information can be found in Notice 199A: temporary storage and approved depositories.
8.6 Handling services relating to goods that have been imported from, or are to be exported to, a place outside the UK and EU
The goods handling services may qualify for zero rating if the goods concerned have been imported from, or are to be exported to, a place outside the UK and EU, see section 5.
8.7 Services excluded from zero rating
The letting on hire of any goods including cranes or other lifting equipment is not zero-rated.
9. Intermediary services
9.1 What are intermediary services
This is where you act for, or represent someone else (the principal), in the making of arrangements for a supply of freight transport or a related service as covered in this notice.
9.2 Place of supply of intermediary services relating to freight transport and related supplies
9.3 VAT treatment of intermediary services
If you’re the initial intermediary who’s involved in the making of arrangements of the services covered in this notice, and the place of supply of your services is the UK, your supply is zero-rated if you make arrangements for the supply of:
- space in a qualifying ship or aircraft
- handling, storage or transport of goods imported to or exported from the UK or EU as set out in section 6
- handling or storage services as set out in section 8
In all other cases your supply is standard-rated.
For more information on the meaning of qualifying ships and aircraft see VAT Notice 744C ships, aircraft and associated services.
9.4 Examples of intermediary services relating to the supply of freight transport or related services
If you arrange for a supply of freight transport that takes place wholly in France, for a UK customer that is not ‘in business’, the place of supply of your service is France. You, as the supplier of the intermediary service, may be required to account for the VAT on your supply in France.
If you arrange for a supply of freight transport to export goods from France to the USA, for a UK customer that is ‘in business’, the place of supply of your service is the UK. The service being arranged is for the exportation of goods from the EU so is zero-rated.
If you arrange for a supply of freight handling at Felixstowe docks for a UK customer that is not ‘in business’, the place of supply of your service is the UK. The service being arranged is the handling, in a port, of goods carried on a ship so is zero-rated.
9.5 If you receive intermediary services
If you’re ‘in business’ in the UK and receive intermediary services the principles set out in paragraph 4.3 will apply.
10. Freight forwarders
10.1 Special VAT rules for freight forwarders
There are no special rules for the VAT treatment of freight forwarders. You must look at the services you’re providing on an individual basis to determine how they should be treated for VAT purposes.
10.2 What to consider in determining the VAT treatment of your supplies as a freight forwarder
To determine the VAT treatment of your supplies you need to consider:
- if you’re acting as a principal or an intermediary - as freight forwarder you may provide a variety of supplies either acting as an intermediary in arranging supplies between two other parties or supplying the services as a principal - see section 9
- if you’re making a single supply - if you act as a principal, it’s likely that you provide your customers with a number of services in relation to a single transaction or contract, in such circumstances, your services may form a single supply for VAT purposes, where you’re making such a single supply, its VAT treatment should be determined according to the overall essential nature of the supply, see paragraph 10.4
- if you’re making multiple supplies your services may constitute more than one supply, you will need to consider the treatment and VAT liabilities of such separate supplies on an individual basis, similarly, if you’re an agent, you may be arranging one or more supplies - this can affect both the place of supply and the liability of your services, see paragraph 10.4
- the place of supply for your services, see section 2 and 3
- the VAT liability of the services you’re providing, this will depend upon the nature of the services you’re providing or the place of supply for these services
10.3 Examples of supplies made by freight forwarders
Some examples are:
|Description||Nature of supply||Place of supply and VAT liability|
|You’re asked to arrange for goods to be imported from the USA on behalf of a UK non-business customer. You buy in the international transport, arrange insurance, arrange customs clearance, pay the import duty, and buy in the transport from the place of importation to your customer’s premises.||You’re regarded as making a single supply of international transport.||Your supply is zero-rated to the extent that the transport takes place in the UK.
The rest of the journey is outside the scope of UK VAT (see paragraph 3.2).
The payment of import duty is a disbursement and is outside the scope of VAT (see paragraph 10.4).
|A UK business customer asks you to arrange delivery of their goods from Paris to Birmingham. You buy in the transport and arrange for overnight storage at Dover.||You’re making a single supply of transport with associated handling and storage.||The place of supply of which is the UK (see paragraph 3.1).
Your supply is standard rated.
|A UK customer has arranged to have goods exported to Australia. You’re asked merely to arrange for a haulier to take the goods to the airport.||You’re acting as an intermediary in the making of arrangements of international freight transport.
The haulier is making supplies of transport in connection with an export.
|Your supply is zero-rated (see section 9).
The haulier’s supply is zero-rated (see section 5).
10.4 How to treat disbursements
Disbursements, such as payment of Customs Duty, are outside the scope of VAT and should normally be identified separately on your invoice. This does not apply to expenses you incur in making your supply, such as postage and telephone costs, these form part of the consideration for your supply (whether your supply is standard or zero-rated), even if separately itemised on your invoice.
Further information on disbursements is given in the VAT guide (Notice 700).
11. Reverse charge
11.1 Reverse charge procedure
This is a simplification, which means that overseas suppliers do not register and account for VAT on supplies made in the UK to customers that are ‘in business’ in the UK.
11.2 How does the ‘reverse charge’ operate
If you receive services to which the reverse charge applies, you, the customer, must account for VAT as if you were the supplier of the services. You will need to credit your VAT account with an amount of output tax, calculated on the full value of the supply you have received and at the same time, debit your account with the input tax to which you’re entitled, in accordance with the normal rules.
Customers that are not VAT-registered must add the value of the supply received to their business turnover for the purpose of deciding whether they need to register for VAT. See VAT Notice 700/1: should I be registered for VAT.
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