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HMRC internal manual

VAT Transport

Transport: Freight transport and related services - introduction

International freight transport was zero-rated at the start of VAT in 1973. The zero-rating also applied to related services such as the handling of cargo, the handling of exports and imports, and intermediary services in arranging any of these.

On 1 January 1993, with the introduction of the EC Single Market, there were significant changes to the VAT treatment of freight transport.

On 1 January 2010 significant changes were made to the place of supply of services; these include freight transport and associated services

What is freight?

Freight includes

  • goods/cargo;
  • mail;
  • documents;
  • unaccompanied vehicles;
  • vehicles transported on ships which are charged at a “driver accompanied” rate; and have no passengers, including buses and coaches;
  • animals; and
  • corpses.

The transport in a ship plane or train of a bus, coach or taxi with passengers is regarded as passenger transport, and is dealt with under the separate rules for passenger transport described in VTRANS020000, VTRANS030000 and VTRANS040000.

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After 1 January 2010

From 1 January 2010 the place of supply of most services, including freight transport and related services, when made to a business customer is the place of belonging of the customer. The place of supply of these services made to a customer not in business remains in the place where the transportation takes place or the place of physical performance of the related services.

The full details of place of supply of services can be found in VATPOSS.

There has been no change to the liabilities of freight transport and related supplies where the place of supply is UK. However, because of the change to the place of supply some supplies previously performed outside the UK may now have a place of supply within the UK and be taxable here and vice versa.

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From 1 January 1993 to 31 December 2009

With the introduction of the EC single market on 1 January 1993, the concepts of import and export between Member States disappeared. VAT could no longer be collected on the value of imports for intra-EC trade and new place of supply rules were introduced for freight transport, which enabled tax to be accounted for in the Member State where the right to deduct the tax occurred. These are fully described in VATPOSG, VATPOSS and VATPOSTR.

From 1 January 1993, the transport of freight between Member States, and the associated ancillary and intermediary services, are dealt with entirely under the Place of Supply provisions. Zero-rating is therefore not relevant to such supplies, except in the very limited case of the transport of goods to or from the Azores or Madeira (zero-rated under Schedule 8, Group 8 item 13: see VTRANS100000).

Freight transport not related to intra-EC movements is supplied where it takes place, and zero-rating remains applicable to such transport supplied within the UK which involves the movement of goods from a place within the EC to a place outside the EC or vice-versa (zero-rated under Schedule 8, Group 8 item 5).

In considering problems concerning the VAT status of freight transport and related services it is therefore essential that you first determine the place of supply by consulting the rules in VATPOSTR3000.

VTRANS deals only with liability under Schedule 8, Group 8, and any zero-rating under the provisions of this Group can only apply if the supply is made within the UK.

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Before 1 January 1993

Before the introduction of the EC single market on 1 January 1993, freight transport and the related ancillary and intermediary services were supplied under the basic place of supply rule; where the supplier belonged.

Where such services were supplied in the UK and related to international movements, including movements wholly outside the UK, between the UK and other Member States of the EC, or between the UK and third countries, they were zero-rated under the VAT Act 1983, Schedule 5, Group 10, item 5.