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Where Taxpayers and Advisers Meet

EXW sales to a UK customer

Clover
Posts:1
Joined:Mon Dec 06, 2021 8:29 pm
EXW sales to a UK customer

Postby Clover » Mon Dec 06, 2021 9:01 pm

Hello,

I find myself puzzled on a particular subject.

Post-Brexit, we are selling to a UK established business customer on an agreed EXW basis. The products are taken directly to port for export (no UK stop-off point, not even at the customer's location). The customer is providing his UK VAT number for the sale but refusing to pay UK VAT on the basis that the products are exported. I am told the customer is prepared to provide export documentation but I have not obtained any examples yet in order to verify that the named exporter of record is our customer (not us).

On the face of it, this is an indirect export (because of the EXW incoterm). However, indirect exports are described in VAT notice 703 as only exports made to 'overseas persons' defined in para 2.4. as: 'a business person or company who is not resident in the UK' OR 'a business that has no business establishment in the UK from which taxable supplies are made' OR 'an overseas authority'.

Our customer is clearly a UK resident, with a UK address and a UK VAT number. I don't believe it has any foreign VAT numbers. So strictly speaking, this isn't an indirect export situation.

1) Am I right therefore to conclude that for EXW export sales to UK based customers, we must charge UK VAT and the customer cannot refuse this?

2) If the customer insists that he'll make the (correct) export paperwork available, are we as supplier in a safe position for zero-rating our sales?

3) If we set up the customer without their UK VAT number OR obtained a foreign VAT number for the customer, would this mean we can zero-rate our sales?

I'd really appreciate some help! Thanks.

Trevor S
Posts:91
Joined:Tue Jan 01, 2019 12:37 am

Re: EXW sales to a UK customer

Postby Trevor S » Thu Dec 09, 2021 8:34 am

It's not an area of VAT that I have much involvement in, but here are some thoughts in case they help. I am assuming that the company you're dealing with is a principal in the supplies - i.e. they're not an agent in a supply by you to the person to whom the goods are being exported.

I think that it depends on whether your customer has a business establishment within the UK - see notice 703 final paragraph of 2.9 and 2.10.

If they have a business establishment in the UK, it's not an indirect export. You are making a standard rated supply to them, and they (subject to meeting the normal conditions) are making a zero rated export to their customer. This shouldn't be a problem for them, as they would be entitled to recover the VAT you charge via their UK VAT return, due to them then making an onward zero rated export.

However, having a UK VAT registration doesn't necessarily mean that they have a UK establishment - non-established taxable persons (NETPs) are required to register too. See https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg37050. Might be worth looking up their VAT registration number on the HMRC checker https://www.gov.uk/check-uk-vat-number - this may help in determining whether there is a UK establishment?

So considering your three questions, my opinions would be:
1. Yes, if your customer has a UK business establishment and you are not the exporter of the goods, you should charge VAT.
2. No, I don't think that having proof that your customer has then exported them impacts on the treatment of your transaction. That's because if it were to impact, how many steps back through a supply chain might theoretically be affected!
3. As you're not the direct exporter, zero rating would only apply if the criteria for an indirect export were met. If the customer has a UK business establishment, they're not met, regardless of whether you obtain a foreign VAT number from them.

I'm still struggling to see the benefit from the customer's perspective, apart perhaps from cashflow if they need to pay you the VAT significantly earlier they can recover it on their VAT return. If they're still convinced that VAT isn't due, perhaps you could refer them to the extract from notice 703, and ask them to provide extracts of guidance that supports their view?


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