Exporter entitled to zero rate goods

Main purpose of loan was tax mitigation
January 18, 2025

Exporter entitled to zero rate goods

The taxpayer sold goods to reward programme operators (RPOs) but arranged for the delivery of the goods to be made directly to the reward recipients (RRs) of the scheme. The RRs could be based inside or outside the UK. When they were outside the UK, the taxpayer zero-rated its sales invoices to the RPOs as an export of goods which were zero rated. HMRC claimed that the supply of goods to the RPOs happened before they left the UK and were therefore standard rated.

The First-tier Tribunal reviewed the commercial contracts between the RPOs and the taxpayer. It decided that the taxpayer was responsible for the delivery of the goods to the RRs and that the RPOs never took physical possession of them. The risks of trade, such as goods being lost in transit, were all taken by the taxpayer which liaised with the couriers to ensure their safe arrival.

The legislation at VATA 1994, s 30(6), zero-rates the export of goods by a UK supplier as long as a sale ‘meets such other conditions as laid down in regulations or by HMRC’. Many parts of HMRC Notice 703 have the force of law, particularly regarding the proof of export that must be retained by the seller. There was no dispute that the taxpayer retained adequate proof of shipment.

The tribunal reviewed the case of ASOS plc (TC6567) which concerned whether retained delivery charges for retail goods sold online but returned by customers within 28 days were a penalty against the customer – not subject to VAT – or a retention of part of the selling price which was therefore subject to VAT. That case confirmed that ASOS had made a single supply of delivered goods in the same way as the taxpayer here.

The judge said: ‘The appellant is aware from the outset that the goods will be delivered to the RR and agrees to make the supply on that basis.’ She agreed the taxpayer ‘sent the goods to a destination outside the EU/UK’.

The taxpayer’s appeal was allowed.

Neil Warren, independent VAT consultant, said: ‘This case confirms the importance of reviewing contracts between suppliers and customers to determine the correct VAT position. It all comes down to the important question of ‘who is supplying what and to whom?’ The case is also a reminder that great care is needed when three parties are involved in a deal, particularly when the rate of VAT will be different if a supply is to party A rather than party B. I would be very surprised if HMRC appeals this verdict.’

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