HMRC is aware of incorrect treatment by businesses whereby import VAT has been incorrectly deducted as input tax by non-owners of the goods. As from 15th July 2019, HMRC will only allow claims for input VAT deduction if the owner is the importer and pays the UK import VAT. In case the non-owner is the importer and pays the UK import VAT, HMRC will not allow an input VAT deduction. A transitional period to 15th July 2019 has been put in place for businesses to make any necessary changes and implement correct procedures. This is especially important for toll manufacturer, who are acting as importer and recover the import VAT paid. These toll manufacturer does not own the goods.
Toll operators import goods, process them and distribute them within or outside of the UK but to other EU countries (for instance for clinical trials). The toll operator does not take ownership of the goods and does not resell them. The only supply by the toll operator is of its services to its client not resident and not registered for VAT in UK (the owner of the imported goods).
Title to the goods at all times remains with the owners. However, the toll operator acts as ‘importer of record’ on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate (C79). HMRC has become aware that a number of UK toll operators who have paid import VAT on behalf of their not resident and not VAT registered customers have also claimed a corresponding deduction for input tax under section 24 of the VAT Act 1994. However, there is no provision in UK law for such deduction.
There is no evidence to suggest that the businesses concerned have knowingly applied the wrong treatment. In all cases seen by HMRC, the toll operator has dealt with the importation and paid or claimed the import VAT to provide an administrative and cash flow benefit to their customers, as part of the overall service they provide.
The correct procedure is for the owner to be the importer of record and reclaim the import VAT, either in accordance with section 24 of the VAT Act 1994 (if registered for VAT in the UK) or under the Thirteenth VAT Directive (86/560/EEC).
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