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HMRC internal manual

VAT Export and Removal of Goods from the UK

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HM Revenue & Customs
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Basic principles: Direct and indirect exports

For VAT purposes, supplies of goods for export fall into two categories - direct and indirect. These terms should not be confused with the definitions of direct and indirect export used for customs purposes which are explained at VEXP40300. Direct and indirect exports are subject to separate legal rules described below.

Direct exports

A direct export occurs when the complete transaction from supply to export is under the control of the UK supplier or owner of the goods. The location of the customer is not a relevant factor provided the goods are exported under the control of the supplier.

The liability of such supplies is legislated for in Article 146(1)(a) of The Principal VAT Directive 2006/112/EC which allows for the zero-rating of

the supply of goods dispatched or transported to a destination outside the Community by or on behalf of the vendor

Direct exports are defined in section 30(6) of the VAT Act 1994 as follows

A supply of goods is zero-rated by virtue of this subsection if the Commissioners are satisfied that the person supplying the goods –

(a) has exported them to a place outside the member States; or

(b) has shipped them for use as stores on a voyage or flight to an eventual destination outside the United Kingdom, or as merchandise for sale by retail to persons carried on such a voyage or flight in a ship or aircraft,

and in either case if such other conditions, if any, as may be specified in regulations or the Commissioners may impose are fulfilled.

Examples of direct exports include situations where

  • the UK supplier, or an agent employed by the supplier, eg a freight forwarder, is responsible for the physical export of the goods
  • the UK supplier sends the goods by post, or
  • the UK supplier exports the goods in baggage using the ‘Merchandise In Baggage’ (MIB) procedures.

Indirect exports

In the case of an indirect export, the supply must be made to an overseas customer.This means a person or company who

  • is not resident or registered for VAT in the UK
  • does not have a business establishment in the UK from which taxable supplies are made or
  • is an overseas authority

An indirect export occurs when the goods are exported outside the EC by or on behalf of the overseas purchaser ie someone other than the UK owner or supplier arranges the export.

The liability of such supplies is legislated for in Article 146(1)(b) of The Principal VAT Directive 2006/112/EC which allows for the zero-rating of

the supply of goods dispatched or transported to a destination outside the Community by or on behalf of a customer not established within their respective territory, with the exception of goods transported by the customer himself for the equipping, fuelling and provisioning of pleasure boats and private aircraft or any other means of transport for private use;

Indirect exports are defined in section 30(8) of the VAT Act 1994 as follows

Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where –

(a) the Commissioners are satisfied that the goods have been or are to be exported to a place outside the member States and

(b) such other conditions, if any, as may be specified in the regulations or the Commissioners may impose are fulfilled.

and in regulation 129 of the VAT Regulations 1995 (SI 1995/2518)

Supplies to overseas persons

129(1) Where the Commissioners are satisfied that –

(a) goods intended for export to a place outside the member States have been supplied, otherwise than to a taxable person, to –

(i) a person not resident in the United Kingdom,

(ii) a trader who has no business establishment in the United Kingdom from which taxable supplies are made, or

(iii) an overseas authority, and

(b) the goods were exported to a place outside the member States,

the supply, subject to such conditions as they may impose, shall be zero-rated.

Examples of indirect exports include situations where

  • the overseas person or their agent e.g. a freight forwarder collects the goods in the UK and exports them as freight or
  • exports them in baggage using the ‘Merchandise In Baggage’ (MIB) procedures.

Such arrangements are typically referred to as ‘ex-works’ transactions.