Ray Ward of HMRC gives his take on VAT and customs procedures for exporters. He's participating in a webinar on the topic in collaboration with UKTI's Open to Export team on Friday 6 Sept at 11am - see the end of this blog for relevant links
When it comes to VAT it is not uncommon for people to think that, when they deal with customers outside theUK, this automatically means they are exporting or trading internationally.
Defining ‘export’
But where your customers are based determines, in the eyes of HMRC, whether your supplies are actually ‘exports’ – goods going outside the European Union – rather than ‘dispatches’ – goods moving between member states within the EU. It also determines whether you are involved in international or single market trade. To avoid doubt, I will only use the term export to mean goods going outside the EU.
The EU is a single market with no customs frontiers between member states, which allows goods to move freely between them. It is only when goods enter or leave the EU that formal customs requirements apply.
This means the customs and VAT regulations that apply will depend on whether you are ‘exporting’ or not.
VAT
Specific rules apply to the VAT treatment of supplies sent to customers outside theUK, both in the EU and internationally.
By understanding and identifying the different groups of customers and the VAT that needs to be paid to the UK government, as well as any specific conditions that may apply, you will be less likely to incur penalties. An example of this is being made to pay UK VAT where an invoice was wrongly marked with a VAT rate of zero per cent, known as zero rating.
Where goods are sent outside theUKthere are time limits that begin from the time of supply for removing them from theUKand obtaining valid evidence of removal.
For goods removed from the UK, the time limits are:
- three months (including supplies of goods that are grouped or consolidated before removal), or
- six months for supplies of goods involved in processing or incorporation before removal.
The evidence required is as follows:
- You need to obtain and must show on any invoice the VAT number for any customers registered in the EU so you don’t have to charge UK VAT or can zero rate the supply.
- You must keep evidence to show that the goods were removed within the time limits, for example:
A. For goods dispatchedto another member state:- the customer’s order (including customer’s name, VAT number and delivery address for the goods);
- commercial transport document(s) from the carrier responsible for removing the goods from theUK.
B. For goods exported to a non EU country:
- Goods Departed Messages (GDM) generated by the National Export System when electronic export declarations are processed;
- alternatively it may be in the form of a Single Administrative Document (SAD) endorsed by Customs at the point of exit from the EU.
Customs procedures for trade outside the EU
Trade with customers in countries outside the EU is seen as ‘exporting’ by HMRC and these transactions are governed by our regulations covering ‘international trade’. There are three main requirements:
1. To export your goods, you will need an Economic Operator Registration and Identification (EORI) number. This is a 12 digit reference number or identifier which is unique to the legal entity, such as a limited company or sole trader, to whom it is issued. It is used in all communications with any customs authority where a customs identifier is required, for example in customs declarations.
2. You must have a Commodity code for all goods you want to export from the UK, ensuring you pay the right tax and duty. You can find this by using the online Trade Tariff to search for commodity codes and you can also use help with classifying goods and from the classification guides on the www.gov.uk website
Once you have found the correct codes, the online Trade Tariff lists other things you may need to export your goods, such as export licences or any special regulations for your goods.
If you are having trouble finding your goods in the Trade Tariff then contact the Tariff Classification Service helpline on 01702 366 077. They will help with classifying up to three items per call.
3. You will need a Customs Procedure code, a seven-digit code which is shown on the export declaration, which tells HMRC what will happen to the goods once they are exported if, for example:
A they are to be sold on the open market in the destination country (free circulation) or
B they are to be processed prior to being returned to the EU.
The full seven digit CPC’s are available on www.hmrc.gov.uk
Duty relief schemes
There are a number of duty relief schemes available to businesses exporting that can save you time and money. In order to apply for these you need to contact HMRC and will be expected to follow conditions to ensure you’re eligible.
Catch Ray speaking alongside the Institute of Export on Open to Export webinar “Know where you stand with Customs, VAT & Licensing” being held on Friday 6 September 2013 at 11am. Click HERE to register or to view on demand click HERE
HMRC offers help and advice on these and other topics through HMRC's free webinars – both live and pre-recorded – and e-Learning, as well as via Twitter and YouTube.