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Understand VAT and duty on exports and imports

Understand VAT and duty on exports and imports

Whether you are importing or exporting, there are important VAT and duty rules and procedures. These depend on whether you are dealing with a customer or supplier in another European Union (EU) country, or with the rest of the world. In either case, you must ensure that you charge (or pay) the right amount of VAT. If you are importing from outside the EU, you may also need to pay import duty.

The details can be complex, though thousands of businesses manage to import and export every day without any problem. Alternatively, you might want to use an agent or freight forwarder to handle your responsibilities, particularly if you are new to international trade or only need to import or export occasionally. In either case, understanding what needs to be done will help you get it right.

1 Check your responsibilities

1.1 Confirm whether you are dealing with another EU country.

The 27 EU countries are Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Romania and the United Kingdom.

1.2 Check your responsibilities for imports.

You are normally responsible for clearing the goods through UK customs and paying any taxes.

Your supplier needs to provide the documentation you need to clear the goods through customs (and to make payment to the supplier).

The VAT procedures depend on whether you are buying from a supplier within the EU (see section 4) or outside the EU (see section 5).

If you are importing from outside the EU, you may have to pay import duty.

Your responsibilities depend on what you have agreed in the contract. To minimise the risk of disputes, your contract should use one of the internationally recognised Incoterms.

1.3 Check your responsibilities for exports.

You are normally responsible for clearing goods outwards through UK customs.

Your customer is normally responsible for overseas customs clearance and taxes. You can find out more about how other countries handle import duties and taxes from UK Trade & Investment.

You need to provide your customer with the documentation they need to clear goods into their country (and to pay you).

The procedures depend on whether you are selling to a customer within the EU (see section 2) or outside the EU (see section 3).

Your responsibilities depend on what you have agreed in the contract. To minimise the risk of disputes, your contract should use one of the internationally recognised ‘Incoterms’.

1.4 Decide whether to use an agent to handle your responsibilities.

Freight forwarders can handle customs clearance as well as transport. You can find reputable freight forwarders through the British International Freight Association (www.bifa.org).

Exporting can be simpler if you choose to sell to a single agent or distributor in an overseas country. However, this may not suit your export strategy.

2 Sell to other eu countries

2.1 Check whether your customer is VAT-registered.

Keep a record of their VAT number.

2.2 Confirm what VAT rate applies to the goods.

If you are selling to a consumer, or a non-VAT registered business, you charge VAT at the normal UK VAT rate for the goods.

If you are selling to a VAT-registered business, goods are normally zero-rated for VAT. You must include the customer’s VAT number on the invoice, and keep proof that the goods left the UK.

2.3 Invoice the customer.

You must provide a VAT invoice. Keep copies of all invoices.

2.4 Declare the total value of your sales to other EU countries on your VAT return.

HM Revenue & Customs (HMRC) call sales to other EU countries ‘dispatches’ or ‘removals’ rather than exports. Officially, ‘export’ refers to a sale to a customer outside the EU.

2.5 Send HMRC details of your dispatches.

You submit the VAT numbers of your customers and the value of the sales you have made to them using an EC Sales List (also known as form VAT101). You normally do this quarterly.

2.6 Check whether you need to complete an Intrastat Supplementary Declaration.

You must complete an Intrastat return if the total value of your dispatches to EU countries exceeds £250,000 per year.

You use form C1501 to declare details of your dispatches.

2.7 Check whether you need to register for VAT in any EU country you are selling to.

If your sales to consumers and non-VAT registered businesses in any EU country exceed that country’s VAT registration threshold, you are required to register.

Contract the HMRC National Advice Service to check the threshold for any EU country you sell to.

3 Export to countries outside the eu

3.1 Check what VAT rate applies to the goods.

Exports are usually zero-rated. You must keep proof that the goods have been exported.

There are exceptions where exports are not zero-rated. You can check the details with your trade association, local chamber of commerce or the HMRC National Advice Service.

3.2 Check what paperwork you need.

You must declare the export. This is usually done by completing a Single Administrative Document (SAD), also known as form C88.

You need to provide your customer with the documents they need to import the goods into their country. Providing these documents can also be part of the process of getting paid.

As a minimum, you will need documents recording the exporter (yourself), the customer, the goods and their value, the export destination, how the goods will be transported and the route they will take.

Keep copies of documents giving details of all the sales you have made.

3.3 Record the value of your exports on your VAT return.

3.4 Take care of any responsibility you have for overseas customs clearance and taxes.

Normally you will have agreed that your customer handles this. Take specialist advice, or use an expert agent, if you are responsible.

You can find out more about how other countries handle import duties and taxes from UK Trade & Investment (www.ukti.gov.uk).

4 Acquire goods from eu countries

4.1 Give your supplier your VAT number.

This allows the supplier to zero-rate the supply for VAT.

4.2 Confirm what paperwork you require from the supplier.

You will need a VAT invoice as with any other purchase.

4.3 Account for VAT.

Purchases of goods from other EU countries are referred to as ‘acquisitions’ or ‘arrivals’, rather than imports. Officially, ‘import’ refers to a purchase from a supplier outside the EU.

You must account for VAT on acquisitions (‘acquisition tax’) on your VAT return. VAT is charged at the normal UK rate of VAT for those goods.

You reclaim this acquisition tax in the same way as you reclaim input tax on purchases of supplies within the UK.

4.4 Check whether you need to complete an Intrastat Supplementary Declaration.

You must complete an Intrastat return if the total value of your acquisitions from EU countries exceeds £600,000 per year.

5 Import goods from outside the eu

5.1 Check what import duty applies.

Import duty is based on the type of goods you are importing, the country they originate from and their value.

HMRC’s Integrated Tariff sets out the classification of goods and the rates of duty in detail (https://www.gov.uk/trade-tarif).

Your trade association or your import agent may be able to advise you.Find your trade association on the Trade Association Forum website www.taforum.org.uk.

5.2 Confirm what paperwork you require from the supplier for customs clearance.

This normally includes an invoice and a copy of the transport documents.

You may need proof of the origin of the goods to claim reduced import duty for goods from certain countries.

A valuation document is also normally required for imports above a set value.

5.3 Complete an import declaration.

You normally declare imports using the Single Administrative Document (SAD).

5.4 Pay VAT and duty to get the goods released.

You pay VAT at the normal UK rate for those goods when sold in the UK.

Regular importers can defer payment of VAT and duty by opening a deferment account with HMRC. You need to provide security and must agree to pay by direct debit.

5.5 Account for VAT.

HMRC will send you a C79 certificate showing the import VAT you have paid. You must keep this.

You can reclaim VAT on imports in the same way as you reclaim input tax on purchases of supplies within in the UK.

You cannot reclaim import duty.

6 Handle special cases

6.1 Check whether any goods you are buying are subject to excise duty.

Excise duty is charged on fuel, alcohol and tobacco products.

Excise duty is charged on acquisitions from within the EU as well as imports from countries outside the EU.

If goods are subject to excise duty, you pay this at the same time as you pay VAT and import duty.

VAT is charged on the value of the goods plus excise duty.

6.2 Consider using a customs warehouse if you expect to store imports for a long time.

If you store goods in a customs warehouse, you will not need to pay import duty and VAT until you want to remove the goods from the warehouse.

Storage ‘in bond’ like this is often used for products subject to excise duty, such as wine and cigarettes.

6.3 Find out about possible tax relief if you are planning to re-export goods you import.

You may be able to take advantage of special inward processing relief rules so that you do not have to pay import duty and VAT.

This relief can apply to imports that you process before re-exporting them.

6.4 If you import or export regularly, find out about alternative procedures.

For example, businesses that import regularly and in large volumes can use processes such as Customs Freight Simplified Procedures.

6.5 Take expert advice on your own circumstances.

The HMRC National Advice Service can provide information on duty and VAT issues.

Other sources of information and advice can include international trade advisers at your trade association or your local chambers of commerce. Find your trade association on the Trade Association Forum website at www.taforum.org.uk. Find your local chamber of commerce on the British Chambers of Commerce website at www.britishchambers.org.uk.