VAT, Import an Export: Industry questions answered

More than 100 BPMA members posed questions and received answers from a team from the HMRC

In June, the BPMA hosted a joint event with the specialist export team from HMRC. The online session followed the successful meeting with the Minister for Exports in April, highlighting to the Minister the excessive cost burdens on SMEs since our exit from the EU.

After surveying its members, the BPMA revealed results at a webinar in June sharing stark responses to the end of transition and the considerable burdens faced by both distributors and suppliers alike.

An industry adjusting

The BPMA export survey discovered 51.2% of suppliers were expected to continue DDP (duty delivery paid) terms for existing customers and with 47% of distributors reporting the same expectations from end users, 2021 has been a very expensive year.

A total of 76.5% of suppliers reported a downward trend in spend overall but with enquiries building, the outlook was more positive for the second half of the year –based on getting the sums right on VAT and customs duties. With the entire industry searching for answers, 20% of distributors answering the survey stated they had been forced to find new distribution solutions or risk losing business. The EU was named as the dominant challenge by 67% of businesses, largely unchanged from the previous survey taken in March this year.

Add delivery charges, customs complexities and learning local member state rules, and the cocktail of frustration was leading BPMA members to embrace and instigate significant changes in their businesses with many restricting trade in the EU as a result. The additional operational and real costs have been hard to bear with rising freight and material increases, prompting members to search for more answers.

VAT Answers

Keen to find out answers to niggling VAT questions which appear to have alluded even the most experienced of accountants, the remote session was welcomed by the BPMA.

BPMA CEO Carey Trevill was joined by members to help represent a series of key questions surrounding ongoing export and import activity. BPMA Chair Angela Wagstaff (Allwag Promotions), Andrew Langley (Juniper Products), Lisa Munroe (Marke Creative) and Alex Turner (Listawood) presented the HMRC experts with the quandaries facing member businesses.

Members posed questions to the HMRC team on a number of areas. These included shipments with no value to the recipient; ecommerce webshops; how to approach postponed or deferred VAT; whether UK businesses are now better off setting up shop in Europe, and avoiding pain in exporting.

Tackling the‘non-value’ shipment query, Andrew Langley addressed the VAT experts on the transaction and destination to help determine where VAT should be charged when considering a delivery where the recipient never receives a bill. Separating whether the transaction was between Northern Ireland and Great Britain, the type of direct export or a transit movement would help determine whether zero rated VAT would be applied.

The VAT team went on to explain the company or person responsible for supply is responsible for ensuring all the different rules are adhered to and advised members to consider fiscal representation to aid smooth transit. Langley said the significant burdens on SMEs query  costs on occasional transactions often rendered transactions ‘uncommercial’ by their nature. 

Angela Wagstaff addressed the next question relating to fulfilment via webshops, asking how to treat goods based in the UK and sold between UK-based companies. The first point was addressed about where goods were physically located rather than the client location. Based on goods located in the UK, VAT is applied at the point of sale. HMRC was keen to stress VAT treatment is based on where the goods are physically held at the point of sale. Stating that goods held in the UK at point of sale would qualify for zero rating when exporting outside of the UK, irrespective of where the buyers are located helped clarify how goods should be billed. HMRC did however highlight there may be additional import duties for these types of transactions, advising members check the destination country for rules which may apply. If location and export is from Northern Ireland to the EU, this will be treated as an intra EU supply for VAT purposes. Rules of Origin were also addressed as dependent on the origin of goods, tariff rate of that good would also need to be considered and applied, noting the application of the Northern Ireland protocol.

To postpone or defer, that is the question

Many in the industry have wondered whether it is best to postpone VAT or defer duties. Alex Turner asked the panel to help with a real-life application of postponed VAT to help suppliers with import and export.

Postponed VAT accounting was introduced for UK registered VAT business, providing cashflow benefits for companies explained HMRC as there was no need to pay VAT immediately. For those businesses importing before 31 December 2021, HMRC said this was mandatory for those importing non-controlled goods, under the staged customs process.

There is no application or approval process for postponed VAT accounting and HMRC expects companies to use this system rather than pay for VAT at the point of import. Picking up on the confusion between postponed vs deferment, Lisa Munroe asked which system would be preferable based on the types of transactions the promotional merchandise industry undertook.

The VAT team stated clearly there wasn’t much difference however duty deferment only delayed payment at the point of import and was a customs process. On a more detailed explanation, the postponed VAT accounting system was considered a far better cash flow advantage solution for businesses as you are accounting for and recovering the import VAT at the same time. On the basis you are a fully taxable business, this was a better way to manage cash.

Duty deferment was considered to hit cashflow harder and therefore there was a clear recommendation to opt for postponed VAT accounting. Some key points for all businesses to note were to understand the use of a duty deferment account to account for any other duties needed, deciding what deferral limits might be. Postponed VAT accounting also negates the need to account for import VAT in declarations pointed out HMRC.

Is setting up a business in the EU the way to go?

After listening to several scenarios during the session, BPMA CEO Carey Trevill posed the last question as to whether, all this could be solved by simply setting up a business in the EU. VAT policy team members pointed to postponed VAT accounting as a great solution and didn’t see that an EU business would benefit. However, importing and making taxable supplies into EU member states, an EU VAT number would be beneficial.

Using the EU VAT electronic refund scheme was also considered a more effective electronic solution and HMRC pointed to this option to help look at how VAT costs could be recovered. This was advised as a preferable route to the 13th Directive (the EU VAT refund process), seen as a slower and more cumbersome way to reclaim VAT. 

Going on to answer a number of questions posed by the 100+ members listening into the session, the four HMRC experts addressed queries relating to location and delivery of goods, how best to resolve VAT concerns and helpful links to navigate complex EU sites.

Representing the industry case

Continuing the cause of members, the BPMA has progressed conversations with The Department of International Trade, The Business Energy and Industrial Strategy department and HMRC to ensure our voice is heard in the continued challenges faced by members and the wider industry. Now actively involved in consultations and expecting more information to be shared in line with the work Whitehall is doing with supporting British business with EU member states, the BPMA will continue to report back to members on progress.

BPMA members can access the recording of the session, Q&A and updated information by contacting [email protected]. Survey conducted in May/June 2021 with BPMA members. Results first shared on 17th June 2021.