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VAT Voice by Steve Allen

Your business has just received a special one off order and you can only buy the goods to fulfil that order from another EU member state. Are there any VAT pitfalls? If so, how can you avoid them? Steve Allen, Director of VAT Solutions (UK) Ltd, provides some answers

Place of supply

Client’s situation

Comp Co Ltd sells computer equipment to wholesalers in the UK. It recently received a large order for specialist computer equipment from a regular customer in the UK. Comp Co Ltd did not have the items in stock but knew it could source them from a supplier in France. In order to have the funds available to purchase the items it asked for a large deposit from the customer, which they agreed to supply. Comp Co Ltd immediately paid this deposit over to the supplier to secure the supply of goods. Comp Co Ltd was going to use its own transport company to collect the goods and deliver them directly to its customer in the UK. The balancing payment would then be due from the customer on final delivery.

Basic rule

When trading in goods that are sourced from abroad it is important to consider the so called “place of supply” issues in order to avoid potential VAT problems concerning where VAT should have been accounted for. The basic rule is that it should be accounted for in the country where the goods are located at the time they are allocated, or legal title passes to the customer. So what’s the problem for Comp Co Ltd?

Potential pitfalls

Allocated to the customer

By taking a large deposit for the goods from its customer and paying it to the supplier, Comp Co Ltd would have accidentally allocated them to its UK customer while the goods were in France (under EU VAT law meaning the place of supply was now France not the UK. Consequently the company would have then needed to register for VAT in France).

Costly

Registering for VAT in France is not fun as all the forms have to be completed in French and various sworn legal documents have to be obtained. To cut down on the excessive administration involved most companies normally appoint a tax representative at additional cost thus reducing the profit. But Comp Co Ltd found another solution to its problem.

How was this avoided?

With some minor administrative changes Comp Co Ltd was able to avoid the need to register for VAT in France. What were these changes?

Paperwork

When quoting for the work Comp Co Ltd included a paragraph in its terms and conditions that stated that legal title to the goods remained with Comp Co Ltd until such time as the customer took delivery. It agreed that its French supplier would retain legal title to the goods until they were delivered to Comp Co Ltd.

Delivery

To make doubly sure that it could not be considered to have control of the goods while they were in France it had its French supplier arrange delivery of the goods to the dockside in the UK where its own transport company took over the final leg of the journey to the UK customer. Comp Co Ltd would then have taken physical delivery of the goods in the UK.

Tip 1

When sourcing from the EU you can take a deposit from your customer. However, make sure your paperwork includes the relevant wording about title not passing until delivery.

Tip 2

Take physical deliver of the goods in the UK only. You want your supplier to have control of the goods up until that point.

To avoid registering for VAT in another EU state make sure your paperwork includes title to the goods not passing until delivery. Your supplier should also keep control of the goods until they are in the UK

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc