Can anyone help answer a question re import VAT

Dummie_2

Hello

Not sure if this is the right board or even whether it's OK to post this question so I do sincerely apologise if I'm doing something wrong.

The situation is my DH is the director of a Ltd company. The company buys commercial furniture from China, imports them to the UK and sells them to restaurants/hotels.

Recently he found himself a big UK wholesale company who wanted to buy goods from him. However this company wanted to use their own shipping company so we sold the goods as ex-works.

So we got the order. The customer paid the deposit. We placed the order with our outsourced China factory. The goods were then handed over to the customer's shipping agent at the port in China and based on the customer's instructions, they made the necessary shipping arrangements.

Once we got the Bill of Lading we presented it to our customer whom then paid us the remaining balance.

The goods have now arrived in the UK and the customer's shipping agent has issued the customer with an invoice for import VAT. The customer re-directed it to us saying that he had already paid VAT on our invoice to him so this VAT invoice should be paid by us.

I called inland revenue who told me that the import VAT should be paid by the customer as the goods were handed over in China and it was them who instructed the shipment into the UK.

However, our customer is concerned because this will mean he has had to pay VAT twice. Once on our invoice and again on import. He now claims that we should not have charged him VAT on our invoice.

I called inland revenue again who told me that we were right in charging our customer VAT as both companies are UK and VAT registered.

I haven't gone back to the customer yet and I kind of need double re-confirmation that all this is correct. I know that all this VAT can be re-claimed back so at the end of the day the customer is not really paying it twice but from the customer's point of view, I can understand his concerns.

Anyone here who is in the know? Pls help. Thank you so much.

Dummie_2

Altarf wrote: »

As the goods were supplied 'ex-works' in China then they were supplied to your UK customer in China and thus this supply was outside the scope of UK VAT (to be pedantic this is not the same as zero rated) and you should not have charged UK VAT. It is irrelevant that you are both registered for VAT in the UK, as it is the location of the goods when the sale takes place that is the important fact. As your customer imported the goods then they must pay the import VAT.

Thank you for your reply. Can I just clarify please. So even though the invoice for the goods were raised in the UK by a UK company and paid in the UK in pound sterling we should not have charged the customer VAT on our invoice because goods exchanged hands in China?

Also, when you say it is the location of the goods when the sale takes place that is the important factor - at which point do you consider it a sale?

When the customer places the order?
When the customer pays the deposit?
When the customer pays the balance?
When the customer's agent receives the goods?
When the customer receives the goods?

Thanks again for your advice. :beer:

gil13

As you quoted your customer Ex-works terms, then it is up to them to arrange the shipment from the factory usually and to pay the freight and shipping costs to the UK, then to pay any import vat/duty/ advance fees. Your invoice should not have VAT on it in these circumstances and neither should their invoices from the freight-forwarding or shipping company. The VAT element is usually paid on arrival once entered to customs, if they do not have a duty deferment account with customs then they would normally pay the vat/duty to an agent at the port who would charge a small advance fee for doing this and for putting it against their own duty deferment number. if they are vat registered then this is recoverable thorugh their normal vat return. Once cleared and in free circulation when they come to sell the products in the home market they obvioulsy invoice out with VAT applied. Hope this helps.

Dummie_2

Altarf and Gil13 - thank you so much for your clarification. It's clear now.

We have since contacted our customer to explain the situation and will re-issue our invoice without the VAT and refund the sum to them. They will then pay the import VAT that their shipping agent has requested.

Thanks again.