VAT on trading within bonded warehouse

[chui tang]

Hi,

If a business who's main trading activity is within bonded warehouse (under fiscal warehousing regime- selling/buying fine wines as investment within bonded warehouse). I understand that under section 18 VATA 1994 the supply/trading does not incur VAT unless the physical goods are released from the warehouse, hence the trader does not charge VAT on the sales made within this environment. From what I understand is this supply is "outside the scope" of VAT. If the supply is "outside the scope", can the trader actually recover any input tax on business related purchases such as day-to-day running expenses of the business.

Under section 18 VATA 1994 which states that the trader is not required to register for VAT if main trading activities are within the fiscal warehousing regime but can do so voluntarily under sch 1 (10) VATA 1994. Does it imply the trader can reclaim input tax by leaving the option to register?????

I would be grateful if you could help and point me into the right direction on this.

Many thanks

Chui

[SeanJames]

Hello Chui,

Do they purely make outside the scope supplies? The business can only register for VAT where it is making a taxable supply. So in theory, where the business makes 0.1% taxable supplies and 99.9% outside the scope supplies, then 0.1% would entitle it to VAT registration, and it would then be entitled to treat all the VAT incurred as input tax (subject to the normal restrictions)

So, what it comes down to, is whether the bonded warehouse supply, is the only supply made by the business. If it is, then I'd be hard pressed to see HMRC granting registration.

In cases where the supply is considered outside the scope of UK VAT, then a business can register for VAT on a voluntary basis where it receives UK supplies. But the supply in a bonded warehouse is deemed differently, and is purely outside the scope of VAT. As such, this is not in any sense, or could be, in any sense a UK taxable supply.

Cheers
Sean

[chui tang]

Hi Sean,

Many thanks for your reply!

Regards
Chui

[Inovat]

Sorry to wade into this one a little on the late side. And sorry to disagree slightly.

In my opinion, Section 10, Schedule 1, VATA 1994 provides an absolute right to register for VAT if the business is a UK company (i.e. it has a usual place of residence in the UK) and has a trading activity which, although outside the scope of UK VAT, would be VATable if made within the jurisdiction of the UK.

Mr James is not wrong that HMRC will kick up a fuss over this. But the right is clear (to my mind) in UK VAT law and could be stood upon, so that VAT registration is successful eventually (though this could be 6-12 months, or more).

But HMRC are quite accepting these days of businesses with UK VAT on purchases, but outside the scope supplies. So long as there is evidence of the trading activity, it has to be worth a try ... in my opinion.

[SeanJames]

Hello,

I've recently read a little more into this, and would actually like to retract what I originally stated.

It has always been my opinion that if the supply is "outside the scope of VAT" and this is purely the type of supply, then the person would not have a right to register in the UK. "Outside the scope of VAT" and "Outside the scope of UK VAT" are two entirely different areas though.

On looking through PN702/10, apparently the business has no liability to register for VAT, but can do so on a voluntary basis.

Learn something new every day.

Cheers
Sean

[dally]

Sorry to wade into this one a little on the late side. And sorry to disagree slightly.

In my opinion, Section 10, Schedule 1, VATA 1994 provides an absolute right to register for VAT if the business is a UK company (i.e. it has a usual place of residence in the UK) and has a trading activity which, although outside the scope of UK VAT, would be VATable if made within the jurisdiction of the UK.

Mr James is not wrong that HMRC will kick up a fuss over this. But the right is clear (to my mind) in UK VAT law and could be stood upon, so that VAT registration is successful eventually (though this could be 6-12 months, or more).

But HMRC are quite accepting these days of businesses with UK VAT on purchases, but outside the scope supplies. So long as there is evidence of the trading activity, it has to be worth a try ... in my opinion.

Is a bonded warehouse therefore considered outside the UK for VAT purposes? (It's a point I have never had cause to consider).

You are right that a company that makes supplies that would be taxable if made in the UK has a right to register. I've registered many on those grounds.