The findings of a recent tax tribunal case TSI Instruments Ltd. vs HMRC serves to confirm and remind us that import VAT may only be claimed by the owner of the goods at the time of their importation entitled to reclaim it, that is, the party holding legal title to the goods with the right to dispose of them as owner, and registered for UK VAT (see HMRC VAT Notice 723A HERE).

TSI Instruments Ltd. imported goods into the UK for repair and servicing between 2019-2023 and paid import VAT on the imported consignments, reclaiming it as input tax in its periodic VAT returns. However, His Majesty’s Revenue & Customs (HMRC) decided that TSI was not entitled to an input tax credit for the import VAT involved because it was not the owner of the goods at the time of their importation, and therefore HMRC decided to issue VAT assessments / adjustments for the relevant VAT periods, demanding approximately £8.5m in VAT. HMRC’s decision and assessment was upheld by the tribunal, upon TSI’s appeal.

The tribunal concluded that TSI was not the owner of the goods and that the cost or value of the goods in respect of which the import VAT was payable had not been reflected in any of the output transactions (being the repair services) undertaken by TSI. Therefore, in such circumstances, no input tax credit was available in respect of the import VAT which TSI had paid.

Note that should your company import goods into the UK for processing or repair and eventual re-export, or need to do so in future, you can apply to become authorised by HMRC for Inward Processing (IP) Procedure, which enables such goods to be repaired / processed and re-exported without a requirement to pay import duty or VAT.

The case summarised above notwithstanding, HMRC has been giving consideration to ways of easing the VAT / compliance burden in circumstances where goods are reimported. Currently if the company responsible for the reimport is not the owner of the goods, as is often the case, the VAT payable is not recoverable. This disconnect between liability and ownership within the supply chain creates barriers to VAT recovery and places certain businesses at a commercial disadvantage.

Possible solutions under consideration:

1.Treat the repairer as if owner for import VAT purposes, so that they can recover the import VAT (e.g. using postponed VAT accounting – PVA). 

2. Extend relevant trade agreement clauses to encompass import VAT as well as duty without the use of reliefs / procedures. An origin dependent solution.

3. Fix the Registered Consignee process in HMRC’s Customs Declaration System (CDS) to allow a repairer to act as importer, with import VAT being linked to their customer. An option available in HMRC's previous customs declaration management system allowed VAT to be attributed to a party other than the importer, provided that party was VAT-registered in the UK.

HMRC has confirmed that a previous change in HMRC policy, clarified several years ago, means that import VAT recovery is currently only permitted where the importer is also the owner of the goods. This shifted the locus away from whether the goods were used in the course or furtherance of business which was previously a key consideration.

Under the current approach, ownership is defined by the right to dispose of the goods as owner. As a result, businesses that import goods they do not legally own such as processors are not entitled to recover import VAT, even if the goods are used directly in their business operations. This change has had a significant adverse impact on entities involved in non-ownership-based supply chains.

Prior to any future HMRC policy change, unsatisfactory options that present themselves are that the owners ensure that they are always the importer of record in relevant circumstances (or pay the VAT to the party that is, if not), or temporarily transfer ownership to the intermediary company before importation.

Of course, as above, where a company imports goods into the UK for process or repair and eventual re-export, Inward Processing (IP) Procedure can be used, as it enables such goods to be repaired / processed and re-exported without a requirement to pay import duty or VAT. Talk to us if you wish to explore IP further.