Don’t get caught out by import VAT rules

Have you ever considered how your business handles import VAT? It’s all too easy to assume everything is fine, though risks can be lurking just around the corner.

Recently, HMRC reaffirmed its stance on entitlement to recover import VAT, further highlighting a key principle in UK VAT law: ownership matters when goods enter the UK.

A recent tribunal case saw an importer hit with an eye-watering assessment of just under £8.5 million. Why? The business reclaimed import VAT on goods it was repairing but didn’t own.

How did this happen?

Under UK VAT law, you can only recover import VAT if:

• You own the goods (or have the right to dispose of them as if you were the owner)

Furthermore, input VAT recovery can also be rejected if you are importing the goods to perform a service, but do not include the value of the goods in the amounts you charge your customer.

Other factors such as the intended usage and VAT status of your business can also limit recovery.

Special care should be taken if you import goods for any of the following reasons:

• Repair
• Servicing
• Calibration
• Specialist manufacturing
• Contractual manufacturing
• Leasing
• Rental
• Personal use
• Charitable use
• Non-business use
• Mixed use (e.g. your business is partially exempt)

The hidden risk

Most UK businesses use postponed VAT accounting, which means no VAT is paid at the border and import VAT is recovered in full. While convenient and great for cashflow, this can also create a false sense of security. Many businesses assume their VAT is always fully recoverable, only to find out later that it isn’t.

Sometimes businesses may be asked to provide their EORI and VAT numbers, without being aware of the import VAT accounting requirements and adjustments that may need to be made.

The good news

There are solutions. UK VAT and customs law provide special procedures and reliefs that can suspend or even eliminate VAT costs that would otherwise hit your bottom line.

These may require new authorisations or internal processes, but once up and running can deliver significant savings and peace of mind.

How we can help

Our VAT and customs team specialises in navigating these tricky areas. We’ll help you:

• Identify risks
• Apply the right reliefs and procedures
• Keep your business compliant and cost-efficient

Don’t wait for a surprise assessment. Reach out today to make sure your import VAT strategy is watertight. We’ll guide you through every step, from assessing your current approach to putting effective safeguards in place – helping you stay ahead of any issues before they become costly.