VATPOSS08900 - Where performed services: zero rating of work on goods exported from the EU

Introduction
UK law
Place of supply
Applying the zero-rating
Evidence of export

Introduction

Where the place of supply of valuation of, or work carried out on, any goods, is the UK, those services may qualify for zero rating if the goods are subsequently exported to a place outside the UK under item 1 of Group 7 to Schedule 8 of the VAT Act 1994. However, if the goods remain in the UK see Evidence of export below.

This section describes when the supply of work on goods obtained or acquired in, or imported into, the UK for specifically for processing and subsequent export can be zero-rated. The zero-rate also applies to intermediary services in arranging such supplies, and intermediary services in arranging the export of goods to a place outside the UK, or in arranging services supplied outside the UK.

UK law

UK law implementing these provisions is in item 1 of Group 7 of Schedule 8 to the VAT Act 1994 (amended by TCTA 2018), which zero rates

The supply of services of work carried out on goods which, for that purpose, have been obtained or acquired in, or imported into the United Kingdom and which are intended to be, and in fact are, subsequently exported -

(a) by or on behalf of the supplier; or

(b) where the recipient of the service belongs in a place outside the United Kingdom, by or on behalf of the recipient.

Place of supply

You must be satisfied that the goods in question have been imported into, or acquired in, the UK specifically to be worked on and will then subsequently be exported out of the UK once the work has been completed. If the goods were imported into, or acquired in, the UK and it was found that, after they had been imported, work needed to be carried out on them then that does not satisfy the rules for zero- rating to apply.

Applying the zero-rating

Zero-rating under Group 7 can only apply to supplies which are made within the UK. You must determine its place of supply before attempting to decide whether a supply is zero-rated under this Group.

If a service is supplied outside the UK under these rules, it is not zero-rated under Group 7, but is outside the scope of UK VAT. A UK supplier of such services is not required to charge UK VAT.

Zero-rating under item 1 of Group 7 of Schedule 8 applies where

  • the goods on which the work is to be carried out have been obtained, acquired within, or imported into the UK for the purposes of being worked on; and
  • the goods are not used in the UK between the time of leaving the supplier’s premises and exportation; and
  • on completion of the work, the goods are intended to be, and in fact are, exported from the UK either:
  • by the supplier of the service (or someone acting on their behalf); or
  • if the customer belongs outside the UK, by the customer (or someone acting on the customer’s behalf).

For a service to fall within item 1 of Group 7 it must amount to work carried out on goods, and this means it must be work physically carried out on another person’s goods. The term goods comprises all kinds of moveable property, and does not therefore include land. Services such as valuation and inspection do not involve physical work on the related goods, and cannot therefore be zero-rated under item 1. The position of valuation under item 1 must be distinguished from its treatment under the place of supply rules, where it is treated in the same way as work on goods (VATPOSS08750).

Evidence of export

Suppliers must hold satisfactory evidence of export of the goods to a place outside the UK (as explained in VAT Notice 703: Export of goods from the United Kingdom. If, in anticipation of export to a place outside the UK, a supplier zero-rates the supply under this item but, in the event, the goods are used in the UK before export or export does not take place, the supplier will need to reconsider the place of supply of the services. If the goods remain in the UK, then VAT must be charged on the supply as the conditions of the relief will not have been fulfilled.

Any goods used as an integral or incidental part of the work performed, such as spare parts, paint, and so on, should be treated as part of the supply of services.