complex intra-EU VAT problem

[controller]

Our UK registered company has a UK branch and a branch in another EU state.
Each branch is registered for VAT in its own state.
The UK branch sends goods to the EU branch which do not have VAT added on, and are are dealt with in the EU state under the reverse charge procedure.
On the same transport (which is paid for by the UK branch) are some goods from a supplier who supplies goods to both the UK and the EU branch. The goods were also invoiced with no VAT added on.
The supplier has had a VAT inspection and has been unable to provide satisfactory proof of removal from the UK. We have provided as much information as we can to help, but to no avail. The supply dates back to 2008.
The supplier is therefore proposing to raise an invoice for the "uncharged" VAT.

Several questions arise:
1) Are we liable to pay the VAT?

2) If we were to pay the VAT, could it be reclaimed either
a) by the UK branch as a voluntary declaration
If releveant, can we use the hmrc's refusal to believe that the goods were removed from the UK as "proof" that the goods remained in the UK (even though they weren't!) and that the VAT can be reclaimed

OR
b) by the EU branch under the electronic cross-border refund system?
if b), does the time limit for cross-border refunds of "no later than six months after the end of the ‘prescribed year’ in which you incurred the VAT" relate to the date the invoice is raised (Jan 2012) or the tax point date (2008)

Thanks for any pointers or advice.

[Generix]

Several questions arise:
1) Are we liable to pay the VAT?

For those supplies (if any) which are outside of the 4 year limit for reclaiming your VAT - then it depends on your contractual terms and to some extent your relationship with the supplier as to whether the cost of the VAT is borne by them or you (or shared).

For those which you will be charged UK VAT, normal commercial procedure is for them to provide you with the respective invoice to evidence your claim for the VAT, you include this in your next VAT return, and once the VAT return is settled then you cash settle the VAT with your supplier.

2) If we were to pay the VAT, could it be reclaimed either
a) by the UK branch as a voluntary declaration
If releveant, can we use the hmrc's refusal to believe that the goods were removed from the UK as "proof" that the goods remained in the UK (even though they weren't!) and that the VAT can be reclaimed

It can be recovered, subject to the 4 year time limits, providing you have the VAT invoice. If there is any reason to suspect the supplier is not being truthful about the HMRC assessment then you should get a copy of their assessment/correspondance from HMRC - the supplier should be willing to provide if they want their VAT.

OR
b) by the EU branch under the electronic cross-border refund system?
if b), does the time limit for cross-border refunds of "no later than six months after the end of the ‘prescribed year’ in which you incurred the VAT" relate to the date the invoice is raised (Jan 2012) or the tax point date (2008)

No if you are VAT registered already in the UK, then you cannot submit a claim under the 8th Dir reclaim system.

My final advice would be to check what exactly the issue is with HMRC, is it that the goods weren't removed in good time or that the evidence wasn't sufficient? Are the goods a MTIC fraud type goods (computer chips/phone sim cards/mobile phones)? Usually a BOL would suffice...

[dally]

Is the issue that the supplier, so far as he / HMRC is concerned, sold the goods to your UK branch and then you shipped them to your EU branch? In other words you hold the proof of removal rather than the supplier. Could it then follow that HMRC are saying that title passed here and the sale was UK to UK and so VATable here?

[Generix]

Is the issue that the supplier, so far as he / HMRC is concerned, sold the goods to your UK branch and then you shipped them to your EU branch? In other words you hold the proof of removal rather than the supplier. Could it then follow that HMRC are saying that title passed here and the sale was UK to UK and so VATable here?

It can either be one of two things.

(1) HMRC deem it to be domestic (UK to UK) sale.
(2) HMRC aren't satisfied that the conditions for the intra-community supply were made, and therefore; UK VAT applies.

In either of these cases, I don't think the distance sales rules kicks in; unless the only problem is evidencing customer VAT number. Therefore OP should reconsider their reporting obligations if the initial sale was UK to UK (i.e. OP would then be the one accounting for the intra-community movement on the various reporting).

[controller]

Thanks for the suggestions so far.

To clarify:
The goods are standard retail goods not subject to any special rules.
The supplier received an order from our EU branch and invoiced them directly; they were not ordered or invoiced to the UK branch. We just shared transport.
The value of the VAT involved is in the tens of thousands of pounds and would therefore probably require a voluntary declaration rather than simply being included in the next return, because it related to VAT several quarters ago.

Thanks

[Generix]

Thanks for the suggestions so far.

To clarify:
The goods are standard retail goods not subject to any special rules.
The supplier received an order from our EU branch and invoiced them directly; they were not ordered or invoiced to the UK branch. We just shared transport.
The value of the VAT involved is in the tens of thousands of pounds and would therefore probably require a voluntary declaration rather than simply being included in the next return, because it related to VAT several quarters ago.

Thanks

I personally (for a UK VAT return) wouldn't vol disc the input VAT unless you thought that would result in getting it back sooner (i.e. as you have just filed a VAT return and have a 3/4 month wait), or you wanted HMRC to give you some sort of comfort via audit/pre-cred that it is recoverable.

That being said, you haven't just got the input VAT to consider...you now have the intracommunity supply from UK > EU branch to ammend on your ECSL, intrastat(s) and VAT return(s)....so likely a voluntary disclosure/adjustment to reporting in both territories is required.

Without knowing all the facts with regards to the contracts, transportation arrangements and evidence that has been provided (and even if I did it would likely be moot given a direction/assessment by HMRC appears to have now been made) then I don't really want to comment on what I think the treatment should be, as my opinion could change with a single fact...

[Generix]

Actually....

The reporting in the other territory would be correct...as you would have treated it as an intra-community acquisition from your original supplier....so you can ignore that part...

UK reporting would still need adjusting though. intrastat, ECSL and VAT returns. VAT returns could arguably be adjusted in one period for this as net VAT result would be nil from the intracommunity sales point of view...

Input VAT has only just arisen to your knowledge, so I would put it all in current VAT return.

Most important thing to consider is: Is any of it now time barred?

[dally]

Thanks for the suggestions so far.

To clarify:
The goods are standard retail goods not subject to any special rules.
The supplier received an order from our EU branch and invoiced them directly; they were not ordered or invoiced to the UK branch. We just shared transport.
The value of the VAT involved is in the tens of thousands of pounds and would therefore probably require a voluntary declaration rather than simply being included in the next return, because it related to VAT several quarters ago.

Thanks

I think you will need to consider the contractual terms, including the transport terms. It could be that your supplier has fulfilled its obligations to your UK branch when delivering goods to you. That may make their supply a UK to UK one, subject to UK VAT. You then become the party removing the goods from the UK. However, you refer to sharing the transport so things may not be that way. Whatever, I think you need to be crystal clear on the contractual terms of trade if you wish to be cerain as to the treatment. You could, of course, take the view that HMRC have got it right and work on that basis.

[dally]

That should say "to your EU branch"

[Generix]

It could just be HMRC are taking a hardline approach to their indirect removals to UK VAT reg customers (implied) rule, hardly ever enforced in my experience, probably because there is no vires to enforce it - unlike the indirect export to UK customer which is much more frequently enforced.

If all the VAT is within the 4 year time limits, then there is no problem really, your supplier has made the error (unless you failed to supply him with sufficient evidence) therefore do as I suggested in my first post - get your refund from HMRC before paying the supplier - therefore no cashflow impact for you.