A recent tribunal decision has emphasised the issue of the ‘ownership of goods’ and the eligibility to reclaim import VAT.
In the case of Piramal Healthcare UK Limited, HMRC raised assessments totalling £196,254 to be repaid in respect of import VAT incorrectly claimed.
The pharmaceutical company (who imported goods into the UK for packaging and paid associated import VAT) was named as the importer of record and thus believed it was eligible to recover the import VAT paid.
It came to light that Piramal was only involved in the packaging process on the goods, and its client remained the owner throughout the process. As a result, HMRC argued that as Piramal didn’t purchase the imported goods, they had no right to reclaim the import VAT incurred, of which the Tribunal agreed.
What does this ruling mean?
This case highlights the importance of HMRC’s policy on ‘ownership’, which is crucial when seeking the recovery of Import VAT. Businesses need to consider who should be recorded as importer as without a proactive approach, the financial risk could be substantial.
The case of ‘ownership’ becomes an issue in UK-EU supply chains especially, due to regular use of the Delivered Duty Paid (DDP) Incoterm. Sellers currently trading under the DDP term may not fully understand the implications this could cause from a VAT perspective, a problem intensified by the lack of understanding within the freight sector where buyers are more likely to be readily declared as the importer.
This area is now being investigated in greater detail by HMRC, and importers are incurring significant assessments where errors are found.
The ‘ownership’ issue also affects importers who receive goods on loan, or provide a repair or ‘value added’ service, as these businesses do not take title to the goods. Therefore, any import VAT paid, or postponed, by these importers cannot be reclaimed.
To avoid any unnecessary complications, businesses need to ensure their eligibility to reclaim import VAT before importing goods in their name.
Get in touch
If you think you may be affected by the ‘ownership of goods’ ruling, and the eligibility to reclaim import VAT, speak to our corporate and indirect tax expert, Andy Kirkaldy, by clicking the button below.
