VATNIEU4940 - Call-off stock simplification: relevant event triggering a deemed acquisition
As set out in VATNIEU4920 certain events that may occur prior to the goods being called off give rise to a deemed acquisition of the goods by the supplier (and not the customer). This is likely to mean that the supplier will need to VAT register in the destination territory.
12-month rule
Stock is permitted to be held in the state of destination pending call-off for up to 12 months from arrival into the state of destination. The date of arrival into the warehouse can be used as that date.
Where stock, for example commodities, is handled on a last-in first-out basis then this can be treated as though first-in, first-out were in operation and the Call-off Stock Register can be maintained on that basis.
If 12 months pass from the date of arrival of the goods in the state of destination without the goods being called off by the customer there is deemed to be:
- a supply by the supplier of the goods in the state of origin
- an acquisition by the supplier of the goods in the state of destination (an acquisition of own goods)
Paragraph 61 of Schedule 9ZA
(1) The rules in sub-paragraph (2) apply (subject to paragraph 62) if during the period of 12 months beginning with the day the goods arrive in the destination territory the supplier does not transfer the whole property in the goods to the customer and no relevant event occurs.
(2) The rules are that:
(a) a supply of the goods in the relevant territory (see paragraph 59(3)) is deemed to be made by the supplier,
(b) the deemed supply is deemed to involve the removal of the goods from the origin territory at the beginning of the day following the expiry of the period of 12 months mentioned in sub-paragraph (1), and
(c) an acquisition of the goods by the supplier in pursuance of the deemed supply is deemed to take place in the destination territory.
Any subsequent supply of the goods by the supplier will be in the state of destination (businesses should confirm the treatment with the relevant authorities in the state in question).
The deemed supply and deemed acquisition occurs on the day after the 12-month period ends. The normal time of supply and VAT accounting rules as set out in Notice 725 will apply.
This includes the requirement to make the normal EC Sales List declaration for such a deemed supply.
Returned goods.
Call-off stock may be returned to the territory of origin by the supplier without giving rise to an acquisition of own goods by the supplier under the 12 month rule or the relevant events rule.
This is conditional on:
- the goods being returned to the territory of origin by or under the direction of the supplier during the12-month period, beginning with their arrival in the state of destination
- the Call-off Stock Register being updated accordingly
It is not necessary for the goods to be returned to the premises of the supplier as the goods may have been sold to another person in the territory of origin.
Paragraph 62of schedule 9ZA
The rules in paragraphs 60(2) and 61(2) do not apply if during the period of 12 months beginning with the day the goods arrive in the destination territory:
(a) the goods are returned to the origin territory by or under the direction of the supplier, and
(b) the supplier records the return of the goods in the register provided for in Article 243(3) of Council Directive 2006/112/EC.
This rule applies to goods sent from and returned to Northern Ireland as the goods are still considered to be within the scope of UK VAT, any supply to another Northern Ireland business that involves the goods being transferred back to Northern Ireland will simply be a domestic supply.
If the goods are “returned” to Great Britain,then that falls within “relevant event” (e) below.
The return of the goods must be reported on an EC sales list by the supplier.
A relevant event
A relevant event is defined in paragraph 63(1) of schedule 9ZA VATA 94.
(1) For the purposes of this Part of this Schedule each of the following events is a relevant event
(a) the supplier forms an intention not to supply the goods to the customer (but see sub-paragraph (2)), (see substitution rule below)
(b) the supplier forms an intention to supply the goods to the customer otherwise than in the destination territory,
(c) the supplier establishes a business establishment or other fixed establishment in the destination territory,
(d) the customer ceases to be identified for the purposes of VAT in accordance with the law of the destination territory,
(e) the goods are removed from the destination territory by or under the directions of the supplier otherwise than for the purpose of being returned to the origin territory, or
(f) the goods are destroyed, ostor stolen. (see small losses below)
Where a relevant event occurs, there is deemed to be:
- a supply by the supplier of the goods in the state of origin
- an acquisition by the supplier of the goods in the state of destination (an acquisition of own goods)
Any subsequent supply of the goods by the supplier will be in the state of destination (businesses should confirm the treatment with the relevant authorities in the state in question).
The normal time of supply and VAT accounting rules as set out in Notice 725 will apply.
This includes the requirement to make the normal EC Sales List declaration for such a deemed supply.
Substitution rule
The substitution rule permits the supplier to decide not to supply the call-off stock to the original customer but, instead, to supply it to a different customer (‘the substitute customer’) without triggering an acquisition of own goods by the supplier under the rules for relevant events.
Certain conditions apply:
- the supplier must decide not to supply the goods to the original customer and at the same time decide to supply them to the substitute customer
- the substitute customer must at that time be registered for VAT in the state of destination
- the supplier must include the substitute customer’s VAT registration number in its EC Sales List
- the supplier must record the intention to supply goods to the substitute customer in the Call-off Stock Register
The introduction of a substitute customer does not change the application of the 12-month rule which applies to the goods and not to the customer.
The substitution can be in respect of the whole amount of the goods held, or in respect of part of the goods.
Paragraph 63(2) of schedule 9ZA
(2) But the event mentioned in paragraph (a) of sub-paragraph (1) is not a relevant event for the purposes of this Part of this Schedule if:
(a) at the time that the event occurs the supplier forms an intention to supply the goods to another person (“the substitute customer”),
(b) at that timethe substitute customer isidentified for the purposes of VATin accordance with the law of the destination territory,
(c) the supplier includes the number assigned to the substitute customer for the purposes of VAT by the destination territory in the recapitulative statement provided for in Article 262(2) of Council Directive 2006/112/EC, and
(d) as soon as reasonably practicable after forming the intention to supply the goods to the substitute customer the supplier records that intention in the register provided for in Article 243(3) of Council Directive 2006/112/EC.
(3) Where the destination territory is Northern Ireland, the reference in sub-paragraph (2)(c) to the number assigned to the substitute customer for the purposes of VAT is to the number assigned to the substitute customer for the purposes of VAT in the United Kingdom along with an NI VAT identifier.
(4) In a case where sub-paragraph (2) applies, references in this Part of this Schedule to the customer are to be then read as references to the substitute customer.
Example
A customer’s business is taken over by another taxable person. That person may become the substitute customer where the conditions are met.
There are several call-off customers for the same type of goods and the stock when initially sent is allocated appropriately to each customer in the Call-off Stock Register.
However, one customer requests call-off for an amount greater than that recorded in the Call-off Stock Register.
The substitute customer rules will, where the conditions are met, apply to any additional stock that is called off by a substitute customer in these circumstances.
Small losses of call-off stock held in the UK
A “small loss” of goods destroyed,lostor stolen may be disregarded for deemed acquisition purposes.
A small loss is where 5% or less of the quantity of relevant goods delivered into the UK warehouse in any (rolling) 12-month period are destroyed, lost or stolen within that same 12 months.
The supplier must identify the “relevant goods” and quantity by reference to the descriptions entered into the call-off stock register. That is the quantum of the goods lost should be measured against the delivered quantities of the same goods (less any returns).
Only the goods destroyed, lost or stolen in excess ofthe 5% measure need to be accounted for as a deemed acquisition into the UK.
Example
In the first month of operating the call-off regime 1,000 units are delivered and 900 have been called off. An audit shows that of the remaining 100, 10 are missing. As the 10 missing represent 1% of the 1,000 delivered it is a small loss.
At the end of 9 months a further 8000 units are delivered making a total of 9,000. A stock check shows that a further 400 were missing. The total loss is now 410 out of 9,000 delivered (4% rounded down) so still a small loss.
At the end of 11 months a total of 11,000 have been delivered but a further 1000 are destroyed in an accident. Total loss is now 1410 out of 11,000 delivered (12% rounded down). This is no longer a small loss.
Businesses should therefore account for the loss of 770 units calculated as follows:
- 12% loss less 5% (small loss that does not need to be accounted for) leaves 7%
- delivered quantity 11,000 of which 7% is an accountable loss, or 770 units
- on the day the loss occurs (or isidentified) you should account for 770 units as having been acquired
At the end of month 13 the 1,000 units and the 10 lost in month 1 will drop out of the calculation.