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HMRC internal manual

VAT Export and Removal of Goods from the UK

Assessments, adjustments and demands for tax: Liability to interest on export assessments

Court of Appeal case – Musashi Autoparts Europe Ltd

Where an assessment is raised because the trader did not hold evidence of removal within the set time limits and the trader subsequently produces satisfactory evidence of export or removal, it is important to remember that subsequent production of evidence does not remove the obligation to pay any interest charged on the assessment. This is supported in the Court of Appeal case between the Commissioners and Musashi Autoparts Europe Ltd (formerly TAP Manufacturing Ltd)(2003/0658).

The company made supplies of goods that qualified for zero rating under section 30(8) of VAT Act 1994. However, the company failed to provide the documentary evidence of removal within three months of the date of supply and an assessment was notified for the tax on the supplies, together with a charge for interest under section 74(1) of VAT Act 1994. Subsequently, evidence of removal was produced. A voluntary disclosure was submitted for over-declared VAT.

HMC&E (as was) accepted that some of this evidence had been held at the time of the visit and the assessment was amended accordingly.  The Tribunal quotes HMC&E as saying “The Conditions for zero rating are complied with if the evidence is held, but not produced”.  The rest of the voluntary disclosure balanced the VAT assessed but the interest charge remained.

The company appealed.

The tribunal (LON/99/809) allowed the appeal but the High Court reversed this decision and upheld the assessment to interest. Lightman J held that

“When it is open to the taxable person to establish that his supply is zero rated but he fails to do so, the taxable person and the Commissioners are to treat the supply as standard-rated and the Commissioners are empowered to make an assessment imposing an obligation to pay VAT and interest on this basis.”

The subsequent satisfaction of the conditions for zero rating did not have retrospective effect, and “the satisfaction of the liability under the assessment of VAT in no way discharges or undermines the assessment for interest. The liability for interest accrued (as it could only accrue) during the period of the liability for VAT. On satisfaction of the liability for VAT, there could be no further accrual of interest, but the liability for accrued interest continues undisturbed. The satisfaction of the conditions for zero rating gives rise to no separate credit in respect of the liability for accrued interest.”