Recovery of Import VAT

From the 15th of July 2019, HMRC will only allow the owner of the goods at the time of import to recover the import VAT. In recent guidance HMRC have outlined a number of instances where they have become aware of import VAT being ‘incorrectly’ recovered by taxpayers who are not the owner of the goods:

1. One of the examples used by HMRC is where an agent (defined by HMRC as a “Toll Operator”) acts as an importer for a business outside the UK, performs services for the overseas business such as distribution services when the goods are imported into the UK but does not take ownership of the goods. HMRC have outlined that it has come to their attention that these “Toll Operators“ have been acting as the importer for record, paying the import VAT, receiving the import VAT certificate (C79) and have been recovering VAT through their own VAT return. HMRC have outlined that this type of arrangement is wrong as the “Toll Owner” does not have ownership of the goods and the correct procedure is for the overseas owner of the goods to be the importer of record, pay the import VAT and recover the import VAT if they are registered in the UK.
2. The second example used by HMRC is that some businesses sell goods just before importing them into the UK so ownership and title has passed to the new owner, however the business that sold the goods acts as ‘importer of record’ on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate (C79). The correct procedure is for the new owner of the goods to be the importer of record and reclaim the import VAT on the C79 Import VAT certificate.

HMRC have accepted that previous guidance in this area was not clear on the correct procedure. Furthermore, HMRC will not pursue VAT deductions previously claimed on import VAT claimed by someone other than the owner of the goods where this does not result in duplicate claims or a loss of Revenue for the exchequer. Business who are effected by the above should review their supply chains, contracts and shipping/incoterms terms to avoid having difficulties recovering VAT.

The above examples used by HMRC would have been used by overseas business to avoid creating a VAT registration obligation in the UK which can be costly from a compliance perspective. However, to be able to recover any VAT on the importation of goods into the UK the owner of the goods would need to have a VAT registration in the UK to receive the Import VAT certificate “C79” and have an entitlement to recover VAT. With significant uncertainty still around Brexit this recent publication from HMRC is of relevance to Irish businesses who plan on trading with the UK post Brexit.

Irish Revenue have not issued similar guidance on who is entitled to recover import VAT. However, the basic test for recovery of import VAT is set out within section 59 (2)(b) of the VAT Consolidation Act 2010. This provides that there is VAT recovery for an accountable person in respect of goods “imported by him or her” in so far as those goods are used by him/her for the purposes of his/her taxable supplies. Given the guidance in the UK and the ECJ jurisprudence in this area, there is a risk that Revenue will in the future seek to restrict import VAT recovery to the person who owns the goods at the time of import.