Conditions for zero-rating: Evidence retained by third parties
It is a condition of zero-rating that a business obtains and holds satisfactory evidence of export or removal within specified time limits. Some businesses might wish to retain such documentation at the premises of a third party, such as their freight forwarder.There may be concerns and risks for compliance if businesses adopt such arrangements without first consulting HMRC.
It is important that any arrangements set up comply with our requirements for record keeping, meet the requirements for zero-rating exports and intra EC transactions, and can be fully tested for VAT assurance 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.
If you come across such an arrangement, or are approached by a business who wants to set one up, contact the Exports Unit of Expertise for advice – see VEXP10600 for contact details.
Points to consider
Such 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.
Businesses wishing to use such arrangements 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
- the 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 by the third party 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 the third party.
If you are satisfied, write to the business confirming agreement to the arrangements. Make it clear that the business will be responsible for any VAT that may become due if there are any problems with the arrangement.
If you encounter such 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.