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How do you treat sales to the Crown Dependencies?

Crown Dependencies

If you make occasional sales to customers in the Channel Islands (CI) or the Isle of Man (IoM), are you sure that you are treating them correctly for VAT purposes? It’s an area that businesses can often slip up on, which can mean penalties are charged for underpayment.

To complicate matters, sales to the CI and the IoM are treated differently. This is because the IoM is treated as part of the UK for VAT purposes while the CI are not.

Sales to the Isle of Man

VAT in the IoM is not administered by HMRC but by the Isle of Man Customs & Excise. The only differences between VAT in the IoM and the rest of the UK is that there is a reduced rate of 5% VAT on domestic property repairs and accommodation provided by hotels in the IoM.

The IoM is not strictly part of the UK, but following the Customs and Excise Agreement 1979 , it is treated as part of the UK for VAT purposes. This means that goods sent from the UK to the IoM are not treated as exports, and so VAT must be charged at the usual UK VAT rate.

The same applies to the supply of services which are subject to VAT in exactly the same way as customers in other parts of the UK. VAT charged to customers in the IoM is reclaimed on IoM VAT returns and any VAT charged by suppliers in the IoM is recovered on the UK company’s VAT return in the normal way.

Tip. Include sales and output tax with the rest of your UK figures.

Sales to the Channel Islands

The CI, which comprise Jersey, Guernsey, Alderney, Sark and Herm, are not part of the UK or the EU for VAT purposes. Goods exported to the CI can be zero-rated for UK VAT purposes, as long as documentary evidence of the export is kept in the same way as exports to any other destination outside the EU.

Tip 1. Any extra charges made for freight, shipping, postage or delivery should also be zero-rated.

If your business accounts for VAT on the flat rate scheme (FRS), it must include the value of the export in the turnover you apply the flat rate to.

Tip 2. If your business starts to increase the proportion of its sales to the CI, the FRS may no longer be the best option.

If you supply services rather than goods, these are also treated as supplies to a non-EU country, irrespective of whether they are made to business or non-business customers.

Guidance

You can find guidance on how to account for exports in VAT Notice 703 (see The next step ).

One final thing to bear in mind is that if you supply services related to land or property located in the CI, you may be subject to a 5% Goods and Services Tax if you perform the services in Jersey, so try to avoid doing so if realistically possible.

For a link to VAT Notice 703, visit http://tipsandadvice-vat.co.uk/download (VA 08.11.04).