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HMRC internal manual

VAT Supplies in Warehouse and Fiscal Warehousing

Supplies of goods within a warehousing regime: Disapplication of section 18(1) of VAT Act 1994

Certain supplies of goods within customs warehouse are treated as taking place within the United Kingdom. The power to disapply the provisions of section 18(1) is provided by section 18(1A) of VAT Act 1994:

18(1A) The Commissioners may by regulations prescribe circumstances in which subsection (1) above shall not apply.

The circumstances in which section 18(1) are disapplied are set out within regulation 145K of the VAT Regulations 1995:

145K - (1) Section 18(1) (supply of goods subject to warehousing regime and before duty point treated as taking place outside the United Kingdom) shall not apply in the following prescribed circumstances.

(2) The circumstances are –

(a) that there is a supply of goods that would but for this regulation be treated for the purposes of the Act as taking place outside the United Kingdom by virtue of section 18(1);

(b) the whole or part of the business carried on by the supplier of those goods consists in supplying to a number of persons goods to be sold, by them or others, by retail;

(c) that supplier is a taxable person (or would be a taxable person but for section 18(1)); and

(d) that supply is to a person who is not a taxable person, and

(i) consists in a supply of goods to that person to be sold, by that person, by  retail, or  
(ii) consists in a supply of goods to that person by retail.This legislation was implemented in the Finance Bill 2005 and the new regulation 145K came into force on 1 September 2005. Regulation 145K is aimed at avoidance schemes which relate to “party-plan” type sales of retail goods to unregistered distributors for their own use or for onward sale to final consumers. In circumstances where section 18(1) is disapplied, import VAT 

and supply VAT become due.