Managing VAT in cross-border transactions on the supply of goods can be complex. In our latest blog, PM+M corporate and indirect tax manager, Andy Kirkaldy, provides some useful pointers to help navigate VAT on exports and imports.

Understanding VAT in cross-border transactions

Accounting for VAT in cross border transactions works differently than that of a domestic transaction.

Exporting goods  (the movement of goods from the UK to a place outside the UK)

• Zero-rated supply: exports are generally zero-rated, meaning UK VAT is charged on the supply at 0%. Consideration must be given to the corresponding import, where VAT will be levied in the country of destination at local rates.
• Incoterms: should always be considered in cross border transactions to ensure the seller doesn’t trigger any unwanted tax obligations in the country of destination.
• Documentation: you must keep all required documentation to support zero rating, including commercial invoices, shipping documents, and proof of export. If you don’t, HMRC will expect UK VAT to be charged, and this could result in a sunk cost to the seller. We’ve seen business stung on this on a number of occasions!
• Indirect exports: selling goods on an Ex-Works (EW) basis (where your customer arranges to pick up the goods) comes with increased risk. Obtaining appropriate evidence of export is essential and slightly different rules apply.
• Customs duties: consideration must be given to the origin of the goods to ensure unexpected duty cost in the place of destination is avoided.
• EORI: To export (and import), a business needs an EORI number.

Importing goods (the movement of goods from the UK to a place outside the UK)

• Import VAT: when goods are imported, a VAT liability will typically be due on the arrival of goods into the UK. The default approach is that import VAT is due immediately, and this can be recovered later by the importer subject to normal VAT rules.
• Postponed Import VAT Accounting (PIVA): most businesses should elect to use PIVA in respect of their imports. This means instead of paying cash up front and recovering later, the VAT is dealt with via the VAT return, meaning a cashflow saving is received. This approach can result in other cost savings too!
• Customs duties: additional duties may apply based on the type of goods and their origin. It’s important to maintain all customs declarations and proof of VAT and duty payments. You may wish to keep open a deferment account to delay the payment of duty.
• VAT vs duty: whereas VAT is recoverable, duty is a sunk cost, so understanding this from the outset ensures there are no unexpected surprises!
• Ownership: only the owner of the goods can recover import VAT. A vital point and one that is often ignored.

Practical tips for businesses

• VAT registration: if your business regularly engages in cross-border transactions, consider whether you need to register overseas. In some cases, it may be beneficial to do so.
• Stay informed: VAT regulations are subject to change, so it is important to keep up with the latest rules in both your home country in addition to any countries you trade with.
• Maintain accurate records: it is paramount that you keep appropriate evidence. For exports, refer to VAT Notice 703.
• Seek professional advice: If you’re unsure, speak to a VAT specialist who can support you with your VAT obligations, ensure compliance and ultimately, optimise your VAT position.

Get in touch

Navigating VAT in cross-border transactions requires diligence and can lead to costly errors. Be proactive, not reactive, and know that you don’t have to do it alone! Get in touch with our VAT specialist, corporate and indirect tax manager, Andy Kirkaldy (by clicking the button below) to discuss your circumstances in more detail.