HMRC announce changes in VAT recovery rules for UK importers

Nigel Roberts

Nigel Roberts

VAT Director and Head of VAT & Duty

23 April 2019

HMRC have announced a major change in the rules governing VAT recovery for businesses which import goods into the UK. At present, the changes will affect only goods imported from outside the EU, but with Brexit still unresolved, goods entering the UK from within the EU could also be caught.

Who is affected?

The change will affect all imports where the named UK importer is not the owner of the goods. HMRC have confirmed that from 15 July 2019, an importer will not be allowed to recover VAT paid at import unless it also owns the goods concerned.

This will mean that:

  • UK toll manufactures and other providers of services to overseas customers who import their customer’s goods into the UK will no longer be entitled to recover import VAT paid, even though they are the importer of record, hold the relevant customs documentation and clearly use the good for a business purpose. Any other business which pays and recovers import VAT on goods they don’t own could also be affected.
  • Overseas businesses who have toll manufacturing/operator arrangements with UK providers where the UK supplier acts as importer into the UK could suffer additional import VAT costs unless alternative operating structures are adopted.

Why is the change happening?

HMRC have been targeting toll operators in the UK for some time, threatening retrospective assessments for import VAT reclaimed on goods which they imported into the UK, but which were owned by their customers. Impacted businesses included toll manufacturers and providers of specialist logistics, storage and testing services.

UK VAT law and HMRC’s guidance has always appeared to support VAT recovery in this scenario and business models have been built around it. HMRC’s change in policy was surprising and attempts to collect historic VAT very worrying. It now appears that HMRC will no longer look to collect back tax in most circumstances, with the change in policy being introduced prospectively.

What should I do?

Confirm whether you are impacted – if you use toll manufacturing or similar operating models where goods are imported into the UK on behalf of an overseas customer, you should immediately review your operating model to confirm whether you are impacted.

For UK suppliers – alert your overseas customers and consider alternative business models. You will no longer be able to recover import VAT paid on goods you don’t own. Your overseas customers may need to become the UK importer of record, register for UK VAT or consider other ways of recovering VAT.

For overseas customers – recognise that you may have additional customs and VAT reporting requirements because of these changes, including a requirement to register for UK VAT or a requirement to make periodic claims to recover VAT paid.

For both – consider whether existing VAT and duty reliefs could offer and alternative route to removing the impact of this change but recognise that the continued uncertainty over Brexit means that the future of these reliefs is unclear.

Johnston Carmichael’s VAT & Duty team can help you understand the impact of these changes and advise on ways to manage the impact on your business. For more information and to discuss how these changes might affect your business, please contact me here.