The complexity of VAT – VAT on Exports

Jun. 27, 2019, 12:33pm

We are often asked questions regarding VAT and when we provide the answer, the inevitable response from our clients is to marvel at just how complex VAT can be?

By way of example, what is the VAT treatment of a sale (export) of goods to a Norwegian individual where the payment is in instalments; £500 deposit a further part payment of £500 required part way through the job and the balance to be paid prior to shipping.  The goods will not be shipped to Norway until November 2019. What is the correct VAT treatment?

Norway is not within the European Community (EC); therefore, the supply of goods delivered into Norway is treated as a direct export in this scenario.

All of the following conditions have to be met in order to zero-rate an export:

  • You must hold proof that the goods have been shipped from the UK to a destination outside the EC. For example, sea/air waybills or bills of lading, alongside commercial evidence such as sales invoices and contracts.
  • Ensure goods are exported from the EC within three months of the tax point.
  • Obtain official or commercial evidence of export within three months of the tax point.

The tax point will be the earlier of, either the date you send the goods or the customer takes them away, or when full payment is received for the supply. In our example, assuming that full payment will not be made until late 2019, a tax point has not been created.

VAT notice 703 section 11.5 states ‘deposits and progress payments are part payments towards the total cost of a supply received in advance of its completion and have the same VAT liability as the final supply. If the final supply is to be zero-rated as an export, these payments may also be zero-rated.’ In our example the supplier should have treated the payments as zero-rated.

Once the invoice has been paid in full, the export conditions above need to be met in order to support zero-rating the supply. If those conditions cannot be met then the whole supply must be standard rated and an adjustment is required on the VAT return following the expiry of the three-month time limit.

If you have a question concerning VAT, or would like advice on the best possible course of action in a particular area, please do not hesitate to contact us.

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