Import and Export VAT
Cross-border VAT often goes wrong in predictable ways: import VAT is paid but nobody retains the evidence needed to recover it; goods are shipped on contractual terms that create an unexpected import obligation; or an export is zero-rated without adequate evidence that the goods actually left the UK.
Each can be expensive. Most are avoidable if the VAT and customs position is agreed before the transaction takes place.
Import VAT and how to recover it
Goods imported into the UK are generally subject to import VAT at the rate that would apply to those goods domestically. There are two main ways of accounting for it.
Postponed VAT accounting
Postponed VAT accounting — PVA — allows a VAT-registered importer to account for import VAT through its VAT return instead of paying the VAT upfront at the border. The import VAT is included as output tax and, subject to the normal rules for input tax recovery, reclaimed as input tax on the same return.
For businesses entitled to recover the import VAT in full, PVA is therefore normally cash-flow neutral.
The principal evidence is the business’s monthly postponed import VAT statement. Download and retain these statements as part of the VAT records rather than leaving the exercise until year end.
Paying import VAT at import
Where import VAT is paid rather than postponed, the business needs the appropriate official evidence of import VAT — commonly its C79 import VAT certificate — before recovering the VAT as input tax.
A freight forwarder or customs agent arranging the import does not automatically make that agent the person entitled to recover the import VAT. The business claiming the VAT needs to be the correct importer and needs the appropriate evidence.
Who is the importer?
You need to establish who is responsible for the import before the goods move. Incoterms, the commercial contract and the customs arrangements all matter, but the customs declaration also needs to identify the correct importer.
Delivered-duty-paid arrangements deserve particular attention. An overseas seller agreeing to deliver goods into the UK with import formalities dealt with may create UK customs and VAT obligations that were not obvious when the sale was agreed.
Do not treat the freight agent’s decision on the declaration as a substitute for deciding the VAT position.
Exports and zero-rating
Exports of goods from the UK can normally be zero-rated, but zero-rating is conditional. The goods must leave the UK within the relevant time limit and the supplier must retain appropriate evidence of export.
Direct and indirect exports
A direct export is broadly one where the supplier arranges for the goods to be removed from the UK. An indirect export is one where the overseas customer arranges collection or removal.
Indirect exports create a practical risk because the UK supplier is relying on its customer to provide evidence that the goods actually left the country. If a customer collects goods from your UK premises and the conditions for zero-rating are not met, HMRC can assess the supplier for VAT.
Evidence of export
Evidence can include official customs evidence together with appropriate commercial evidence such as transport documents, bills of lading, airway bills, courier records, invoices and payment records.
The point is not simply to know that the goods left. You need a record capable of demonstrating it later.
Services rather than goods
Services follow different place-of-supply rules from goods. For most B2B services, the place of supply is where the business customer belongs. For most B2C services, the general rule is where the supplier belongs. But there are important exceptions.
Land and property
Services directly related to specific land are generally supplied where the land is located. A service directly related to UK land is therefore treated as supplied in the UK even if the customer is overseas.
That does not automatically mean that 20% UK VAT must be charged. Once the place of supply has been established, the normal UK VAT liability rules still need to be considered, including any available zero rate, reduced rate, exemption or reverse-charge treatment.
For example, a non-UK supplier making a taxable land-related supply to a UK VAT-registered business may in appropriate circumstances be dealt with under the reverse charge.
We cover the underlying distinction in more detail in VAT zero-rating services to international customers.
Receiving services from overseas
A UK business receiving services from a non-UK supplier also needs to consider the reverse charge. For many B2B services supplied by an overseas business where the place of supply is the UK, the UK customer accounts for VAT as though it had made the supply to itself.
Where the business has full input-tax recovery, the output and input VAT entries may cancel each other economically. For partly exempt businesses or businesses with restricted input-tax recovery, they may not.
Reverse-charge services under the general B2B rule can also affect whether an unregistered UK business has exceeded the VAT registration threshold. This is particularly relevant to businesses buying significant amounts of overseas software, consultancy, advertising or platform services.
Customs reliefs and deferral
Where goods are imported temporarily, processed and re-exported, or held pending their final destination, customs procedures may defer or remove import tax and duty. These include:
- Customs warehousing — customs duty and import VAT can be suspended while qualifying goods remain under the procedure
- Inward processing — relief for qualifying goods imported for processing and subsequent disposal or re-export under the procedure
- Temporary admission — relief for qualifying goods brought into the UK temporarily
- Returned Goods Relief — relief in qualifying cases where goods previously exported are returned
- Duty deferment — allowing customs duty and other eligible import charges to be paid periodically rather than consignment by consignment
These regimes have conditions, authorisation requirements and record-keeping obligations. Where import volumes are significant, getting the structure right before the goods move is much easier than repairing it afterwards.
Northern Ireland
Northern Ireland has a distinct VAT position for goods. It remains within the UK VAT system, but special rules connected with the Windsor Framework mean EU VAT rules continue to affect certain movements of goods involving Northern Ireland and the EU.
Movements between Great Britain and Northern Ireland, and transactions between Northern Ireland and EU member states, therefore cannot always be treated as ordinary GB domestic or GB export transactions.
If Northern Ireland is involved, analyse the goods flow separately.
Where this usually goes wrong
- Import VAT paid but the evidence needed to recover it is never retained
- PVA used but the monthly statements are not reconciled to the VAT return
- Import VAT recovered by a business that was not the correct importer
- Zero-rated exports without adequate evidence of removal
- Overseas sellers using DDP terms without considering UK VAT and customs obligations
- Overseas software and professional services omitted from the reverse-charge calculation
- Land-related services treated under the general B2B rule when a specific place-of-supply rule applies
- Stock imported into the UK without considering whether holding and selling it here creates a UK VAT registration requirement
Frequently asked questions
Related reading
- VAT zero-rating services to international customersWhy a service related to UK land is treated differently from the general B2B rule.
- Postponed VAT accounting for importersHow PVA works and what evidence to retain.
- VAT on exports: DAP versus DDPHow Incoterms change who carries the UK import obligation.
- All VAT servicesRegistration, returns, scheme selection and HMRC enquiries.
Back to all VAT services.
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