Trading Places?
VAT and customs treatment of imports, exports and ‘intra-EC’ trading

This book introduces the main concepts and trade facilitation reliefs that businesses must understand if they are to trade internationally with the least intervention and disruption from the Tax Authorities. The worst-case scenario is for an importer to have their goods still within Customs’ control, instead of being where they are needed because the correct procedures have not been followed. Allied to this is the need for businesses to secure the release of their goods paying as little import duty and import VAT as possible.  Whilst import VAT is recoverable by most businesses it is still a major cash-flow cost, which has to be funded. Import duty is an absolute cost so importers must review all available means to reduce or remove the duty payable.

The European Community now has 27 Member States and, on behalf of the European Commission, each is tasked with controlling the movement of goods, capital and people both into and out of the EC.  Ensuring that duties and taxes are collected, whilst allowing the free movement of goods, is a vital objective both to the Commission and each Member State.  For example, Customs import duties are uniform across all Member States, being collected on behalf of the Commission, whilst each Member State levies and retains its own import VAT. In the UK, HM Revenue & Customs are required by the Commission to protect the EC’s borders and to prevent smuggling, avoidance and abuse. Whilst not wishing to hamper the international movement of goods, HMRC will always place their ‘policing’ duties above the commercial interests of any Business. 

Successfully managing the VAT and Customs duty issues affecting international trade requires a great deal of knowledge and expertise.  The advent of the “Single Market” in 1993, which dictates how VAT on intra-EC trading is to be accounted for, has added to this burden. The VAT and Customs Regulations relating to international trade are constantly evolving with such regimes as the “Authorised Economic Operator” being introduced in the geo-political arena i.e. world governments and the Commission are using fiscal measures to tackle international security issues post “9/11”.

The book highlights the means of importing goods and arriving at the Customs value on which import duty and import VAT are computed. It also provides commentary on export procedures and the VAT treatment of intra-EC trading, including potential fiscal barriers to exploiting non-UK markets. Chapters on potential pitfalls and planning for international trade provide the reader with an overview of ‘Best-practice’ when looking to import or export goods.

Contents

1                   Introduction

1.1         Purpose of this book. 1

1.1.1      VAT principles. 2

1.1.2      Import duty. 3

1.1.3      Intra-EC trading. 4

1.2         Definitions and Meanings. 4

1.3         The Extent of the “Territories” of the EC.. 6

1.3.1      “VAT Territory”. 6

1.3.2      The “Customs Territory”. 7

1.3.3      The “Excise Territory”. 7

1.3.4      The “Intrastat Territory”. 7

2                   Imports

2.1         Background. 11

2.2         Imports and “Acquisitions”. 11

2.3         Import VAT.. 11

2.4         Importer’s responsibilities and “EORI” numbers. 12

2.5         “Authorised Economic Operator” status. 12

2.6         Import duty and import VAT Deferment 13

2.7         “Simplified Import VAT Accounting” (SIVA) 13

2.8         Importation methods. 14

2.8.1      Air 14

2.8.2      Sea. 15

2.8.3      The Channel Tunnel 15

2.8.4      Northern Ireland Land Boundary. 15

2.8.5      Pipeline. 15

2.8.6      Post Office. 16

2.9         Import procedures. 16

2.9.1      Temporary storage. 17

2.9.2      Declaring the goods. 18

2.9.3      Declaring “Community Goods”. 19

2.9.4      The import entry – the “Single Administrative Document” (SAD/C88) 20

2.9.5      The UK’s import system - “CHIEF” (Customs Handling Imports Exports and Freight) 20

2.9.6      Managing freight logistics - “Customs Freight Simplified Procedures” (CFSP) 21

2.9.7      Who is the “Declarant”?. 22

2.9.8      Post-presentation of the import entry. 22

2.9.9      Warehousing. 24

2.9.10   “Freezones”. 24

2.9.11   “Interport removals”. 25

2.9.12   Transit and Transhipment 25

3                   Reliefs from import duty

3.1         Inward Processing Relief (IPR) 27

3.2         Processing Under Customs Control (PCC) 27

3.3         End-Use Relief. 28

3.4         Returned Goods Relief (RGR) 28

3.5         Outward Process Relief (OPR) 29

3.6         Rejected imports. 30

3.7         Temporary admission. 33

3.7.1      Goods eligible for relief of import duty under the TA regime. 34

3.7.2      Discharging a liability to import duty under the TA regime. 36

4                   “Valuation” – valuing the goods for customs ad valorem duty

4.1         Method 1 – the transaction value. 39

4.1.1      “Earlier sale” value. 40

4.2         Additions to the transaction value. 44

4.2.1      Delivery costs. 44

4.2.2      Commissions. 45

4.2.3      Royalties and licence fees. 45

4.2.4      Goods and services provided free of charge or at reduced cost by the buyer 46

4.2.5      Proceeds of resale. 46

4.2.6      Export duty & taxes paid in the country of origin or export 47

4.2.7      Containers and packaging. 47

4.3         Items that can be excluded from the transaction value. 47

4.3.1      Delivery costs within the EC.. 47

4.3.2      EC duties or taxes. 47

4.3.3      Discounts. 48

4.3.4      Dividends. 49

4.3.5      Marketing activities related to the imported goods. 49

4.3.6      Buying commission. 50

4.3.7      Export quota and licence payments. 50

4.3.8      Interest charges. 50

4.3.9      Rights of reproduction. 51

4.3.10   Post-importation work. 51

4.3.11   Management fees. 51

4.4         Method 2 – the value of identical goods. 51

4.5         Method 3 – the value of similar goods. 52

4.6         Method 4 – the selling price of the goods in the EC.. 52

4.6.1      Subtractions from the unit price. 53

4.6.2      Evidence to support the valuation (and deductions) 53

4.7         Method 5 – the cost of producing the goods. 54

4.8         Method 6 – the “fall-back” method. 55

4.9         “Simplified Procedure Values” (SPVs) 55

4.10       Frozen meat in “round sets”. 56

4.11       Value of goods imported free of charge. 56

4.12       Value of imported “replacement” free of charge goods. 57

4.13       Value of used goods. 57

4.14       Goods used after purchase and before entry into the EC.. 57

4.15       Valuing rented or leased goods. 57

4.16       Goods “not in accordance with contract”. 58

4.16.1   Goods not in accordance with contract – Import VAT.. 59

4.16.2   Goods “not in accordance with contract” – excise duty. 59

4.17       Goods imported in “special situations” –import duty and import VAT.. 60

4.18       Rates of exchange. 62

4.19       “Place of introduction” to the EC.. 62

4.20       All Methods – additional considerations. 62

4.21       Transport costs. 63

4.22       Surcharges and currency adjustments. 64

4.23       Insuring the goods in transit 65

5                   Valuation declarations and statements

5.1         “Season Ticket” Valuation statements. 67

5.2         Valuation rules for other Customs procedures. 67

5.2.1      Customs warehousing. 68

5.2.2      Outward Processing Relief (OPR) 68

5.3         Imported replacement products. 69

5.3.1      Where a charge is made for the replacement products. 69

5.3.2      Where no charge is made for the replacement products. 69

5.3.3      Inward Processing Relief. 69

5.3.4      Valuation rules for import VAT.. 69

5.3.5      Special VAT valuation rules. 71

5.3.6      Valuation rules for trade statistics. 76

6                   Import duty and import VAT reliefs

6.1         Aircraft ground and security equipment 77

6.2         Animals for scientific research – Notice 365. 78

6.3         Antiques – Notice 362. 79

6.4         Blood grouping, tissue typing and therapeutic substances – Notice 369. 79

6.5         Capital goods – Notice 343. 80

6.6         Chemical and biological substances for research – Notice 366. 81

6.7         Commercial samples of “negligible value” – Notice 367. 82

6.8         Decorations and awards – Notice 364. 82

6.9         Donated medical equipment – Notice 341. 83

6.10       Duty and VAT-free allowances. 84

6.11       Food and plants. 85

6.12       Gold. 85

6.13       Goods for disabled persons – Notice 371. 85

6.14       Electricity and natural gas. 87

6.15       Fuel, animal fodder and feeding stuffs, and packing for use during transportation  87

6.15.1   Fuel and lubricants. 87

6.15.2   Fodder and feeding stuffs. 88

6.15.3   Packings. 88

6.16       Goods imported for onward despatch to another Member State. 88

6.17       Goods for use by a charity – Notice 317. 89

6.18       Goods for test – Notice 374. 90

6.19       Goods related to war graves. 91

6.20       Inherited goods – Notice 368. 92

6.21       Miscellaneous documents and other related articles – Notice 342. 93

6.22       Museum and gallery exhibits – Notice 361. 94

6.23       Sailing “pleasurecraft” to the EC – Notice 8. 95

6.23.1   Pleasurecraft Temporarily Admitted (TA) 96

6.24       Scientific instruments – Notice 340. 97

6.24.1   International science projects. 98

6.25       Private gifts (postal packages) – Notice 143. 98

6.25.1   Procedures. 99

6.25.2   De-minimis limits. 99

6.25.3   Charges. 101

6.25.4   Packages received from other Member States. 101

6.25.5   Receiving Alcohol and tobacco from other Member States. 102

6.26       Returned Goods Relief (RGR) - Notice 236. 102

6.26.1   Import duty relief. 102

6.26.2   Import VAT.. 103

6.26.3   Excise duty RGR.. 104

6.27       Visiting forces – Notice 431. 105

6.27.1   Supplies to US visiting forces. 105

6.27.2   Supplies to NATO International Military Headquarters (IMHQ) 106

6.27.3   Motor vehicles. 106

6.28       Visitors to the UK – Notice 3. 107

6.28.1   Personal effects. 107

6.28.2   Private motor vehicles. 107

6.28.3   Transfer of residence. 108

6.28.4   Items bought under “Duty and tax-free” regimes. 108

6.28.5   Personal possessions and motor vehicles retuning to the EC.. 108

6.28.6   Second homes. 109

6.28.7   “Marriage relief”. 110

6.29       Visual and auditory materials – Notice 373. 111

6.30       Zero-rated articles including printed matter 111

7                   Accounting for import duty and import VAT

7.1         What is the “Customs debt”?. 117

7.2         Accounting for import VAT.. 118

7.3         Recovery of import VAT.. 119

7.3.1      “Postponed Accounting System” (PAS) for imports by post – VAT recovery  123

7.4         Goods imported into the UK by a third country/territory supplier 124

7.5         Remission of duty - calculating claims. 125

7.6         Offences. 126

8                   Exports

8.1         Background.129

8.2         Types of export 130

8.2.1      Direct exports. 131

8.2.2      Indirect exports. 131

8.3         Customs procedures relating to exports of goods. 132

8.3.1      “New Export System” (NES) 133

8.4         Community Transit and the New Computerised Transit System (NCTS) 135

8.5         The “Transport International Routiers” (TIR) procedure. 135

8.6         “Admission Temporarie” – Temporary Admission (ATA) Carnet 135

8.7         Excise goods. 136

8.8         European Community export preferences. 136

8.9         Proof of export 137

8.9.1      Official evidence. 137

8.9.2      Commercial evidence. 137

8.9.3      Supplementary evidence. 137

8.9.4      “Tertiary legislation” – HMRC Notices having the “force of law”. 138

8.9.5      Goods supplied “ex-works”. 138

8.10       Evidence of export under the New Export System... 139

8.11       Evidence of export under New Computerised Transit System... 140

8.12       Goods exported via another Member State. 140

8.13       Ports or airports without access to NES. 141

8.14       Goods exported to the Channel Islands. 141

8.15       Particular types of export – proof required. 142

8.15.1   “Groupage”. 142

8.15.2   Goods exported by post 142

8.15.3   Courier and fast parcel services. 143

8.15.4   Exports by rail 144

8.16       Time limits for exporting the goods and for obtaining proof of export 144

8.17       “Time of supply” and “tax point” for exports. 145

8.18       Particular types of exports. 145

8.18.1   Goods delivered to a non-UK branch of the same legal entity. 146

8.18.2   Goods that are lost, stolen or destroyed before leaving the UK.. 147

8.18.3   Goods for “supply and install” contracts. 147

8.18.4   The temporary export of goods for exhibition or processing. 147

8.18.5   Goods supplied on “sale or return” terms. 148

8.18.6   Supplies to “overseas persons”. 148

8.18.7   Racehorses. 148

8.18.8   Supplies to “Overseas Authorities”. 148

8.18.9   Supplies to the Ministry of Defence and overseas military establishments. 149

8.18.10 Certain supplies in connection with the management of defence projects. 149

8.18.11 Supplies to Government Departments other than the Foreign and Commonwealth office (FCO) 151

8.18.12 Supplies to regimental shops. 151

8.18.13 Goods exported after process or incorporation into other goods. 151

8.18.14 Goods exported following several chain transactions. 152

8.18.15 Exports by members of VAT groups. 152

8.18.16 Exports from UK freezones. 153

8.18.17 Freight containers – see Notice 703/1. 153

8.18.18 Ships stores etc. 154

8.18.19 Stores delivered direct to shipping companies. 155

8.18.20 Stores for sale on-board ships etc. 155

8.18.21 Supplies of mess and canteen stores for HM ships. 155

8.18.22 Exports of goods to oil rigs, gas rigs and “continental shelf” installations. 156

8.18.23 Machine tools used in the UK to manufacture goods for export (see Notice 701/22) 157

8.18.24 Goods exported by a charity. 157

8.18.25 Supplies to persons departing from the EC under the “Retail Export Scheme”  158

8.18.26 Exports of motor vehicles. 161

8.18.27 The “Personal Export Scheme” for motor vehicles. 162

8.18.28 Sailaway boats. 163

8.18.29 Supplies of “marine fuel”. 165

8.18.30 Hydrocarbon oils. 165

8.18.31 Supplies at “Duty and Tax-Free” shops. 165

8.18.32 Computer software. 166

8.19       Trade Associations and contact details. 166

9                   Intra-EC Transactions

9.1         Background. 169

9.2         Despatches. 170

9.2.1      Goods removed after process or incorporation. 173

9.2.2      Time limits for removing the goods. 173

9.2.3      Evidence of removal 174

9.3         “B2C” supplies and “Distance Selling”. 177

9.3.1      Goods removed to the UK under distance selling. 178

9.4         “New Means of Transport”. 178

9.4.1      Removing a NMT from the UK – private persons. 179

9.4.2      Removing a NMT from the UK – UK VAT registered supplier 181

9.5         Acquiring NMTs in the UK – unregistered persons. 181

9.5.1      NMTs relieved from Acquisition VAT.. 182

9.6         Acquiring NMTs in the UK – VAT registered persons. 183

9.7         Arrivals and Acquisitions. 184

9.7.1      Value of the Acquisition. 185

9.8         Transfer of an entity’s own goods to another Member State. 186

9.9         Temporary movement of goods. 186

9.9.1      Supplies of services in the Member State of Arrival 186

9.9.2      Goods for temporary use in the Member State of Arrival 186

9.9.3      Changes in circumstances. 187

9.9.4      Register of own movements. 187

9.9.5      Goods for installation or assembly in another Member State. 187

9.9.6      Goods removed for process or repair 188

9.9.7      Work performed on goods before being removed to another Member State  189

9.10       “Triangulation” and “Chain Transactions”. 189

9.10.1   Simplified procedure. 190

9.11       Supplies to diplomats and “international organisations” etc. 192

9.12       “Call-off” stocks. 193

9.13       “Consignment” stocks. 194

9.14       Excise goods. 194

9.15       Goods removed under “sale or return” arrangements. 196

9.16       Samples. 197

9.16.1   General 197

9.16.2   Samples given for testing. 197

9.16.3   Samples given to the general public via an intermediary. 197

9.17       Goods sent for testing. 197

9.18       Record-keeping requirements. 198

9.18.1   VAT returns. 198

9.18.2   EC Sales Lists (ESLs) 200

9.18.3   “Intrastat”. 204

10                “Best Practice” and Planning

10.1       Imports. 209

10.2       Exports. 210

10.3       Arrivals. 210

10.4       Despatches. 211

10.5       Summary. 212

10.5.1   Imports. 212

10.5.2   Exports. 212

10.5.3   Intra-EC trade. 212

10.5.4   Declarations. 213

Appendix A:           Terms of Trade

1            Using the correct “Incoterms”. 215

2            Incoterms. 216

3            Seller’s or buyer’s choice of Incoterms?. 217

4            Checklist 217

Glossary

Index