Businesses in North East face ‘wake up’ call about international indirect tax obligations

While many importers and exporters have a general awareness of these regulations, Azets experts caution that the full complexity often lies “under the surface” leaving businesses vulnerable to costly mistakes.

This wake-up call comes amid increased scrutiny from HMRC.

Azets is currently assisting a number of clients to resolve multi-million-pound issues relating to the movement of goods over international borders.

Such issues often revolve around overclaimed or underpaid VAT, unforeseen overseas VAT registrations or insubstantial evidence to support zero-rating of export sales.

UK businesses are also getting increasingly caught out by issues surrounding Customs Duty, especially ensuring goods are classified correctly and assigned the correct country of origin.

Common issues Azets’ VAT team is seeing include:

• Businesses mistakenly recovering VAT on imports when they don’t own the goods involved – for example, goods which have been brought to the UK for purposes such as testing, repair or some other process, and are then sent back overseas.
• Businesses involved in ‘drop shipments’, i.e. where a business arranges for goods to be shipped directly from their supplier to their customer. This can frequently lead to an unforeseen overseas VAT registration.
• Businesses entering into supply and install contracts whereby goods are exported from the UK and installed overseas. This can also potentially generate an overseas’ VAT registration obligation.
• The use of the incorrect details on import/export documents may leave the company exposed.
• Assigning incorrect classification codes or country of origin to goods can lead to customs penalties and goods being held up at borders. These complex rules can impact on commercial relationships if suppliers provide incorrect information to customers.
• Mistakes by freight forwarders and customs agents. In one example a company potentially missed out on circa £160,000 in recoverable import VAT due to errors by the agent. Clear communication and instruction are therefore key.

Brexit added significant complexity for those businesses that historically were used to frictionless trade with the EU.

As well as the potential for significant HMRC assessments and penalties for non-compliance, starting at 30%, consequences also include cash flow issues, delays at borders, returned goods and commercial problems.

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