Conditions for zero rating: retention of evidence
It is a condition of zero rating that a business obtains and holds satisfactory evidence of export or removal within specified time limits.
It is important that any arrangements set up comply with our requirements for record keeping, meet the requirements for zero rating exports and intra EU transactions, and can be fully tested for VAT compliance purposes.
Record keeping requirements are set out in Notice 700 VAT Guide. Although the Notice does not stipulate where records are to be held, they must be readily available, easy to check, and kept up to date and in such a way as to correctly calculate the amount of VAT payable.
Evidence retained by third parties
Some businesses might wish to retain their export evidence with a third party, such as their freight forwarder or their agent; but not their customer or customer’s agent.
There may be concerns and risks for compliance if businesses adopt such arrangements without first consulting HMRC.
These arrangements, if properly set up, managed and monitored, can meet all our requirements and assist businesses to manage administration costs. However, such arrangements must not be used as a means of avoiding obligations to obtain evidence within the time limits. So, there is a balance to be met between assisting business and preventing any evasion, avoidance or abuse of zero rating.
If you are satisfied with arrangements, write to the business confirming agreement. Make it clear that the business will be responsible for any VAT that might become due if there are any problems with the arrangement.
If you encounter third-party arrangements that are already in place without our agreement, then they must be reviewed to ensure that they meet the above requirements. If the arrangements are found to be unsatisfactory, advise the business in writing.
If conditions for zero rating have not been met, consider assessment procedures described in VEXP90300.
Record keeping requirements
Whatever arrangement a Businesses has, they must be able to satisfy us that
- the records are readily available and are kept in such a way as to allow easy verification of zero-rated exports or removals
- any third party holding the records is aware of the evidential requirements for zero rating and knows what documentary evidence they must retain
- there is a system in place whereby the business
- is made aware of any failure to obtain or retain adequate proof of export or removal within the appropriate time limit, and
- makes the appropriate adjustment to account for the VAT due
- there is a clear link between the accounting records of the business and the evidential records held by them or the third party.
Meaning of “readily available”
When businesses are asked to provide evidence of their zero-rated supplies, it is important that we give the business a period of time to produce the evidence as it may be that some or all of the evidence is held off-premises and may take a while to locate. It is not critical to the matter where exactly that evidence is held nor by whom. What is critical is that we see the evidence within a reasonable period of time after asking for it and that we are satisfied that the goods left the UK from the evidence provided. A reasonable time to obtain evidence is likely to be between 2-3 weeks of your request.