HMRC’s policy of disallowing VAT claims unless the imported goods form part of the importer’s onward taxable supplies is damaging UK PLC
That is the opinion of leading tax and advisory firm Blick Rothenberg.
Alan Pearce, a partner who leads the VAT team at the firm, said: “Many businesses are not able to reclaim import VAT if they don’t own the goods where these are being imported only for onward shipment after processing or packaging. This could discourage hundreds of businesses from taking on valuable service-related activities in the UK, because the alternative is to force them into complying with complex import regimes on behalf of overseas owners and manufacturers looking for UK expertise.”
Alan added: “In a recent First Tier Tribunal appeal, the decision confirmed HMRC’s policy of disallowing VAT claims unless the imported goods form part of the importer’s onward taxable supplies. This means that unless the importer owns the goods or becomes the owner of the goods, it cannot reclaim the import VAT.”
Alan said: “This is the case of Piramal Healthcare UK Limited, a company that imported goods into the UK for the purposes of undertaking various processes and clinical trials for the owner of the goods. Piramal took the view that the imported goods were being ‘used for the purpose of its business’ and therefore, this entitled it to reclaim the import VAT it had paid to HMRC when the goods arrived in the UK. This had been a long-established practice up until February 2019, when HMRC issued its Business Brief 02/19 announcing that with, effect from 15 July 2019, importers will no longer be entitled to claim import VAT unless they effectively owned the goods, and these became a cost component of the importer’s onward supply. The Tribunal has effectively agreed with HMRC that this is the legal meaning of using the goods for the purpose of the business.”
He added: “In this case, Piramal never took title to the imported goods and only provided taxable services to its customer. The import VAT, therefore, was never Piramal’s input tax to recover as title to the goods remained with its customer. The Tribunal concluded that import VAT is only deductible where the imported goods are a cost component of an onward supply made by the importer.”
Alan said: “This, therefore, begs the question, ‘Does the importer need to own the goods at the time the goods are imported?’ This is not necessarily the test, as HMRC has confirmed, if the importer has the right to dispose of the goods as if it were owner, they can still reclaim the import VAT.
This is a commonly used commercial arrangement where title doesn’t pass to the importer until sometime after the goods have been imported. Therefore, where it is envisaged that title will pass at some point (so that the goods do become a cost competent of the importer’s onward supply) then the import VAT can be claimed.”
Alan added: “Where this is not the case, other means of mitigating the VAT costs will need to be considered. The owner of the goods may be able to act as importer. However, where the owner is established overseas, and doesn’t make taxable supplies in the UK, they will need to apply for a direct refund claim to HMRC. This is not always a positive experience for overseas businesses.
Alternatively, there are some helpful temporary import reliefs available for goods that are imported for processing or packaging and are subsequently re-exported. However, these reliefs are generally only available to businesses established in the UK, so it may be necessary for an overseas owner to request that the UK processor or packager take on the extra administration and apply for the necessary authorisation to use the relief.”
Alan said: “In summary, to be able to reclaim import VAT, importers either need to own the goods, or have the right to dispose of the goods as owner, so that the goods themselves become a costs component of the importer’s onward taxable supply. However, as the UK is no longer in the EU, the UK Government could set its own rules and allow HMRC a more flexible approach to this type of business activity. It could simply allow the recovery of VAT by importers of goods used for qualifying processes and packaging rather than having to force them, or the overseas owners, into more complex solutions that only end up with the same overall revenue impact for UK PLC.”