What does the British government say about removing VAT?

novatBritish sellers who wish to sell their items don’t have to pay VAT for the items that they export to non-European countries. This is a good reason to sell inventory overseas. We wanted to take a deeper dive into the topic and check what exactly the British government says about VAT removal when you are British sellers selling your items for example to the United States or Australia.

As all know, VAT is a tax added to items being sold in the European Union. Those who sell the same items outside the EU don’t have to pay VAT so the prices of the items they sell may have a lower price (it is of course the seller’s decision whether to decrease the price or not). Sellers can then zero-rate the sale, keep the evidence of the export and always comply with all other laws. It is the seller’s obligation to make sure that the sold item is finally exported.

Based on the British government’s information, you can’t zero-rate sales if your customer asks for them to be delivered to a UK address. You may also be able to zero-rate the sale if the customer arranges to collect them from you, an indirect export.

Conditions for eligibility to zero-rate exports:

  • evidence (either official or commercial) you must hold to prove entitlement to zero-rating
  • time limits in which the goods must be physically exported from the EC
  • time limits in which you must obtain evidence of export to support zero-rating

In the event of temporarily exported goods sent on sale or return outside the EU (temporarily for exhibition, or if goods are sent on sale or return and they’re returned), in fact no sale has taken place. In these cases, VAT doesn’t have to be paid

The exporter is the person who, for VAT purposes, either:

  • supplies or owns goods and exports or arranges for them to be exported to a destination outside the EC, or
  • supplies goods to an overseas person, who arranges for the goods to be exported to a destination outside the EC

There are special rules for an export preceded by multiple transactions. Only the final transaction may be zero-rated in the event that two or more single underlying transactions support the movement of goods. An example of such a case is shown by the British government, in which three companies are involved in a chain of transactions as shown below.

Company A based outside the EC orders goods from Company B
Company B based in UK purchases the goods from Company C
but does not take delivery of the goods
Company C based in UK sends the goods directly to Company A
at the request of Company B

In this case there are 2 separate transactions which should be treated as follows:

  • supply of goods from Company C to Company B is a supply in the UK and must be invoiced at the appropriate rate of UK VAT
  • supply of goods from Company B to Company A is zero-rated as an export subject to the relevant conditions being met

Which countries and territories are part of the EC Fiscal (VAT) area?

  • Austria
  • Belgium
  • Bulgaria
  • Croatia
  • Cyprus, including the British Sovereign Base Areas of Akrotiri and Dhekelia (but excluding the United Nations buffer zone and the part of Cyprus to the north of the buffer zone, where the Republic of Cyprus does not exercise effective control)
  • Czech Republic
  • Denmark, except the Faroe Islands and Greenland
  • Estonia
  • Finland
  • France, including Monaco
  • Germany, except Busingen and the Isle of Helgoland
  • Greece
  • Hungary
  • The Republic of Ireland
  • Italy, except the communes of Livigno and Campione d’Italia and the Italian waters of Lake Lugano
  • Latvia
  • Lithuania
  • Luxembourg
  • Malta
  • The Netherlands
  • Poland
  • Portugal, including the Azores and Madeira
  • Romania
  • Slovakia
  • Spain, including the Balearic Islands but excluding Ceuta and Melilla
  • Slovenia
  • Sweden
  • United Kingdom and the Isle of Man.

Processing goods in the EU before exporting them

Very often British sellers send items they sell to another business for a processing first, and later this item is sent to the destination non-EU country. In such a case, sellers need not pay VAT. This particular case has to meet the following conditions to allow sellers to do this:

  • the goods are delivered to the EU business, not sold to them
  • the EU business doesn’t use the goods – it only processes them for export

If goods have to be processed in the EU after leaving their seller but before they’re finally exported, the time limit is 6 months.

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