OVERSEAS VAT - 09.05.2014

Indirect exports - what about the VAT?

Exporting goods

In most cases a business receives an order from an overseas customer and you arrange the transportation. You then have the evidence to zero-rate the sale as an export. But what happens if the overseas customer collects the goods or arranges their own transport? This can cause a problem if you don’t have the evidence to support zero-rating.

Indirect exports

When the customer arranges the transport of the goods themselves this is known as an indirect export. The VATman defines an indirect export as being a sale to a person who: (1) is not resident or registered for VAT in the UK; (2) does not have a business establishment in the UK from which taxable supplies are made; or (3) is an overseas authority (government department etc.).

If an overseas customer arranges for the goods to be collected from your premises and exported to a place outside the EU, it can be difficult for you to obtain adequate proof of export as the carrier is contracted to the overseas customer. The VATman says that for this type of transaction the standard of evidence required to substantiate VAT zero-rating is high.

Get the evidence

Before zero-rating the supply and releasing the goods to the customer, you must confirm what evidence of export is to be provided.

Trap. If the evidence of export does not show that the goods have left the EC within the appropriate time limit (three months), or the VATman decides it’s unsatisfactory, you will become liable for payment of the VAT. You could receive an assessment, plus interest and penalties.

Tip 1. Include the requirement for the buyer to provide export evidence as part of the sales contract.

Tip 2. If the customer has taken the goods and left the country it can be difficult to get them to remember to supply you with the proper export evidence. So request a returnable deposit equal to the VAT due on the supply. Once you have satisfactory export evidence, you then refund your customer the deposit.

What sort of evidence is needed?

The VATman says that the evidence must show the goods you supplied have left the EC. Copies of transport documents alone will not be sufficient. Information held must identify the date and route of the movement and the mode of transport involved. A full list of the evidence required can be found in VAT Notice 703, Section 6 (see The next step ).

The following are required to support zero-rating: (1) official evidence - including goods departed messages; (2) commercial transport evidence including air and sea-way bills, certificates of shipment and CMRs; and (3) supplementary evidence including order forms, sales invoices, consignment notes, evidence of payment, etc.

For a link to VAT Notice 703, visit http://tipsandadvice-vat.co.uk/download (VA 04.07.04).