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HMRC internal manual

VAT Place of Supply (Goods)

Main rules: imported goods

EC Law

Article 32 Principal VAT Directive

32. …… .

However, if dispatch or transport of the goods begins in a third territory or third country, both the place of supply by the importer designated or recognised under Article 201 as liable for payment of VAT and the place of any subsequent supply shall be deemed to be within the Member State of importation of the goods.

UK Law

Section 7 VAT Act 1994

7(6)Goods whose place of supply is not determined under any of the preceding provisions of this section shall be treated as supplied in the United Kingdom where -

(a)their supply involves their being imported from a place outside the member States; and

(b)the person who supplies them is the person by whom, or under whose directions, they are so imported.

Basic principle

Section 7(6) applies to goods whose supply involves their being imported into the UK from somewhere outside the EC. Effectively the place of supply is determined by who acts as the importer. So if the supplier imports the goods into the UK, the supply to the UK customer is treated as taking place in the UK and so the supplier may be liable to register for VAT here.

However, if the UK customer imports the goods, the supply is treated under section 7(7)(b)as taking place outside the UK.

Chain supplies

Goods imported from a third country may involve a chain of supplies. For example

  • A may supply the goods to B
  • B then supplies them to C, and
  • C in turn supplies them to D.

At some stage the goods are imported into the UK and so the place of each supply will depend on who acted as the importer.

If it were A - all three of the supplies take place in the UK.
If it were B - the first supply (A to B) is outside the UK, with the subsequent supplies (B to C and C to D) taking place in the UK.
If it were C - the first two supplies (A to B and B to C) are outside the UK and only the last supply (C to D) takes place in the UK.
If it were D - all three supplies are outside the UK.

Where, or to whom, the goods are delivered in the UK following importation does not affect the position.

Confusion sometimes arises in cases where delivery of the goods does not follow, say, the invoices generated by the supply chain. In the above example, taking C as the importer, it may be that the goods move directly from A to C.Also the documentation relating to the supply from B to C maybe delayed until after importation.

But all this is immaterial. The crucial point is that the goods are imported into the UK and C is the importer. The supply from B to C is therefore outside the scope of UK VAT irrespective of where the goods were at the time of supply.