Reclaiming VAT – Rule change

20th June 2019 Nicky Cole
Reclaiming VAT
On 15 July 2019 HMRC is tightening the rules on Reclaiming VAT on goods imported into the UK in some situations. What’s the full story?

HMRC Brief –  For many years HMRC has allowed businesses to reclaim VAT charged on goods imported into the UK which they don’t own. According to HMRC’s Business Brief 2/2019this will not be allowed from 15 July 2019.

Who will the change affect? The change is not intended to penalise businesses and in fact will not result in HMRC collecting more VAT. However, it’s an important change to how and when the VAT may be reclaimed.

Example – You provide a processing and packaging service for an overseas business which sells products in the UK. The overseas business remains the owner of the goods. When the goods arrive in the UK for you to carry out your services you pay the VAT based on the import document ( C79 ) because it shows your firm’s name as being the importer. You then reclaim the VAT on your next VAT return. This means that apart from cash flow it’s cost neutral for you. Conversely, your customer – the overseas business – benefits because it would normally have to pay the VAT on import and wait to reclaim it. It also benefits because it doesn’t have to register to get the VAT back.

Incorrect procedure – HMRC says that it was happy until now to go along with the type of arrangement shown in the example above, despite it being incorrect. But, perhaps as a side effect of Brexit, it wants the practice to stop. The good news is that HMRC doesn’t intend to take any action regarding transactions prior to 15 July 2019.

Tip – If you’ve been reclaiming VAT on goods owned by another business, you need to let them know about the change as soon as possible so that they can register with HMRC and handle the payment and reclaiming of VAT directly.

Take away – If you import goods for a customer but don’t own them, you will no longer be entitled to reclaim the import VAT on the owner’s behalf. You should notify customers so that they can handle the recovery of VAT from 15 July 2019.
If you need help understanding VAT, give us a call!

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