ATXP6 UK
Syllabus A6. Value Added Tax A6a. Computation of VAT liabilities

A6a. Treatment of imports, exports and trade within the EU

Syllabus A6a)

The computation of VAT liabilities

Selling to E.U. who are VAT registered

  • Goods/services are treated as zero rated.

  • No output VAT will be added to them.

Illustration

A UK VAT registered trader supplies computers costing £10,000 (VAT exclusive) to a company in the E.U. that is VAT registered.

The supply will be treated as zero rated and therefore no output VAT will be charged.

Selling to E.U. who are not VAT registered

  • Goods/services are treated as standard rated.

  • Output VAT will be added to selling price.

Illustration

A UK VAT registered trader supplies computers costing £10,000 (VAT exclusive) to a company in the E.U. that is not VAT registered

The supply will be treated as standard rated and therefore 20% output tax of  £2,000 (10,000 * 20%) will be charged.

Exporting outside of the E.U.

  • The supply of goods is zero rated

  • The supply of services is outside of the scope of VAT

Illustration

A UK VAT registered trader supplies computers costing  £10,000 (VAT exclusive) to a company outside the E.U. 

The supply will be treated as zero rated and therefore no output VAT will be charged. 

Whether the company outside of the E.U. is VAT registered or not does not matter, the supply will be treated as though it is zero rated.

Coming into the UK:

Acquiring from E.U. who are VAT registered/not VAT registered

  • VAT must be accounted for on acquisition.

  • The VAT charge is declared on the return as output VAT but can be reclaimed as input VAT on the same VAT return.

    The UK trader accounts for output VAT as the goods would be standard rated if supplied in the UK.

    The UK trader can claim back input VAT of the same amount on the same return as the goods are used by a trader that only makes taxable supplied.

    The net effect on VAT payable is therefore nil.

  • The entries contra each other, therefore there is no actual VAT cost.

Illustration

A UK company purchased computers costing £10,000 (VAT exclusive) from a company in the E.U. 

The VAT of £2,000 will be accounted for but not paid. 

On receipt, the UK company will account for the £2,000 on it’s VAT return and can claim the £2,000 input VAT on the same VAT return.

Importing from outside of the E.U.

It is necessary to provide a bank guarantee but VAT is then accounted for on a monthly basis.

  • UK VAT registered business must pay VAT at the time of importation.

  • This VAT can be reclaimed as input VAT on the VAT return during the period in which goods are imported.

  • Therefore, the VAT is paid at the time of importation and then reclaimed as input VAT, so there is no overall cost.

  • Regular importers can defer the payments of VAT on importation by setting up an account with HMRC.

Ways to delay payment

If the goods imported are stored in a bonded warehouse, then the VAT payable on importation must only be paid when the goods leave the warehouse.

Another way to delay the payment of the import VAT is to be an approved trader in the duty deferment system, then the VAT to be payed on importation can be deferred.

Illustration

A UK company purchased computers costing £ 10,000 (VAT exclusive) from a company outside of the E.U. 

The VAT of £2,000 will be paid at the time of importation and then claimed as input VAT on the VAT return during the period in which the goods are imported.