Guidance

Zero rate tools that manufacture goods for export (VAT Notice 701/22)

Find out when to use the zero rate of VAT when supplying machine tools that stay in the UK but are used to manufacture goods for export.

Details

This notice cancels and replaces Notice 701/22 (January 2002).

1. Zero rating machine tools used to manufacture goods for export or removal to an EU country

1.1 What this notice is about

This notice explains when you can zero rate supplies of machine tools that stay in the UK and when you cannot.

1.2 About machine tools

Machine tools are goods used in the manufacture of other goods, for example, jigs, patterns, templates, dies, moulds, punches and similar tools.

1.3 When to zero rate your supplies

The supply of machine tools that stay in the UK, are normally standard-rated. You may be able to zero rate your supply if you meet the conditions for zero rating and you’ve used the tool to manufacture goods that are:

  • exported outside the EU from the UK (see section 2)
  • sent to another member state (see section 3)

1.4 Supplying a machine tool

You will be supplying a machine tool when your customer specifically asks you to make it or buy it for them, and you use the machine tool to manufacture goods for the same customer and make a specific charge to them for the supply of the tool.

2. Zero rating machine tools used to manufacture goods exported from the EU

2.1 The conditions for zero rating machine tools used to manufacture goods exported from the EU

Your supply of the machine tool is zero-rated when all of the following conditions are met:

Condition Description
1 You supply the machine tool to an overseas authority - see paragraph 2.2 or
an overseas body - see paragraph 2.3 or
an overseas trader - see paragraph 2.4
2 You get a signed statement (or other similar definite evidence) from your customer that they are neither registered nor required to be registered for VAT in the UK and are not an authority, body or trader in another member state - see section 3 if the manufactured goods stay in the EU
3 You use the machine tool for manufacturing goods that are exported from the UK to a country outside of the EU
4 You hold commercial documentary evidence that the goods have been removed from the UK - see VAT Notice 703: export of goods from the UK

2.2 An overseas authority

An overseas authority means any country other than the UK or any part of, or place, in a country or the government of any such country, part or place.

2.3 An overseas body

An overseas body means a body established outside the UK.

2.4 An overseas trader

An overseas trader means a person who carries on a business and has his principal place of business outside the UK.

3. Zero rating machine tools used to manufacture goods despatched to another EU member state

3.1 The conditions for zero rating machine tools used to manufacture goods sent to another EU member state

Your supply of the machine tool is zero-rated when all of the following conditions are met:

Condition Description
1 The tool is an integral part of a contract, or series of contracts, to supply goods to a VAT-registered customer in another member state and title to the tool passes to the customer
2 You obtain and show on your VAT sales invoice your customer’s VAT registration number (with its 2 digit country code prefix)
3 The manufactured goods are sent or transported out of the UK to a destination in another member state
4 You hold commercial documentary evidence that the goods have been removed from the UK - see VAT Notice 703: export of goods from the UK

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

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Published 5 October 2017