INTTRADE-International trade VAT: the basics

The following information is used for educational purposes only.

International trade VAT: the basics

There are important VAT rules to consider if your business trades internationally. You may also have to pay import duty and VAT.

Understanding the regulations will help you run your business more smoothly and effectively. Not following the rules may result in financial penalties.

This guide will help you to understand which VAT rules apply to your business. If you import goods, this guide will also explain the benefits of deferring import duty and VAT and tell you how to reclaim VAT.

Bear in mind that VAT on imports and exports is a complex subject. If you're unsure of anything regarding your particular business you can contact the HMRC VAT Helpline on Tel 0845 010 9000.

This guide contains basic information. For additional guides containing additional basic information see our section on licensing and paperwork. For intermediate and detailed guidance see our section on excise and VAT.

Use our interactive tool to understand your tax obligations when importing and exporting.



Imports and VAT: what do I have to do?

Generally speaking, VAT is payable on all imports at the same rate that would apply to the product or service if supplied in the UK.

VAT is handled differently depending on whether the goods are imported from outside the European Union (EU) or are already in 'free circulation' within the EU. Goods are in free circulation if they come from another EU country, or have been imported into another EU country with import duty and VAT paid.

Imports from outside the EU

Goods are treated as imports if they have arrived directly from outside the EU or via another EU country without being released for free circulation. Find out which countries are inside and outside the EU for VAT purposes on the HM Revenue & Customs (HMRC) website.

You'll normally have to declare any goods that you import to HMRC and also pay any VAT and duty that's due. To begin this process, contact the HMRC VAT Helpline on Tel 0845 010 9000. Import VAT and duty must be paid before goods are released by HMRC. Find a declaration of imports form (C88) on the HMRC website.

All businesses with an annual (VAT exclusive) turnover of £100,000 or more, and all new businesses registering for VAT, have been required to file their VAT returns online and pay the VAT due electronically.

Enrol for VAT Online on the HMRC website.

Acquisitions and VAT

If you are receiving goods from inside the EU that are in free circulation, you must enter VAT details in box 9 and account for VAT in box 2 of your VAT return. This VAT is known as acquisition tax. You can reclaim the VAT as if the goods were supplied in the UK, subject to the normal VAT rules for reclaiming input tax.

You may have to complete an Intrastat Supplementary Declaration if your arrivals (imports) from the EU exceed an annual amount.

Intrastat thresholds are reviewed annually. The 2011 thresholds are £600,000 for Arrivals and £250,000 for Dispatches. See our guide on Intrastat return and the EC sales list.

If you are buying services, you are charged VAT where you are based, not where the supplier is located. Download guidance on changes to the place and time of supply of services rules on the HMRC website (PDF, 74K).

See our guide on an introduction to Intrastat.

For more information read our guide on excise and VAT in international trade.

Read our guide on how to pay VAT.


How to work out import duty

Import duty is calculated on the type of goods, their value and their country of origin.

For details about the rates of duty applying to particular goods you can call the HMRC Tariff Classification Service Enquiry Line on Tel 01702 366 077.

If the goods originate from countries inside the European Union (EU), no duty is payable.

If the goods originate from countries outside the EU, but duty has already been paid on them in another EU country before they reach you, no duty is payable.

If the goods originate from outside the EU and no duty has been paid, you need to calculate the value of the goods. There are six calculation methods prescribed. If method one is not possible, you should move on to method two, and if that fails use method three, until you arrive at a value. Find out how to calculate import duty on the HM Revenue & Customs (HMRC) website.

One publication you might find helpful is the Tariff. Published annually, it contains information about import and export requirements. You can find out more about the UK Integrated Tariff in our guide: introduction to the Tariff.

You can find commodity codes and other measures applying to imports and exports by accessing our free online UK Trade Tariff.

Note that, unlike VAT, duty can't be reclaimed, even if your business is VAT-registered.

For more information read our guide on excise and VAT in international trade.



How to defer import duty and VAT

If you're a regular importer, it's possible to defer paying import duty and import VAT by setting up an account with HM Revenue & Customs (HMRC). The advantage of this is that you can put off payment by an average of 30 days and your goods will normally be cleared for release more quickly.

Setting up a deferment account is free of charge, but you'll need to get your bank to guarantee you.

Forms for applying to defer payment can be obtained from:

HM Revenue & Customs
Central Deferment Office
6th Floor North West
Alexander House
21 Victoria Avenue
Southend-on-Sea
Essex
SS99 1AA

You can read about deferment on the HMRC website.

HMRC has a Simplified Import VAT Accounting (SIVA) scheme that allows a business to operate import VAT deferment without the need for a full bank guarantee.

There are conditions and not all businesses are eligible, but check with HMRC VAT Helpline on Tel 0845 010 9000 if you are interested. You can read guidance on SIVA on the HMRC website.

For more information read our guide on excise and VAT in international trade.



How to reclaim VAT on imports

In general, you can reclaim the import VAT that you have paid for business goods. This claim should be made on your VAT return for the period during which the goods were imported.

HM Revenue & Customs (HMRC) will send you a C79 certificate to show what import VAT you have paid, and you will need to keep it as evidence to support your claim, for inspection by a VAT visiting officer.

If you lose a C79 certificate you can obtain a replacement by writing to:

HM Revenue & Customs
VAT Central Unit, Microfilm Section
8th Floor, Alexander House
Victoria Avenue
Southend on Sea
SS99 1AU

Quote your VAT registration number and the month for which the replacement is required. You can find out about reclaiming import VAT on the HMRC website.

See our guide on imports and purchases from abroad: paying and reclaiming VAT.



Exports and VAT: what do I have to do?

Supplies of goods for export from the European Union (EU) or for dispatch to VAT-registered customers in other EU countries are eligible to be zero-rated for VAT if certain conditions are met.

The total value of goods exported to destinations outside the EU must be included in box 6 of your VAT return.

If your business sells goods to VAT-registered customers in other countries within the EU, then you need to record details in box 6 and box 8 of your VAT return and submit lists of your EU supplies of goods to HM Revenue & Customs (HMRC).

These lists are known as EC Sales Lists. Information about zero-rating and EC Sales Lists is available in Notice 725 - the Single Market.

Find guidance on VAT within the EU single market (Notice 725) on the HMRC website.

Businesses have the option to submit their EC Sales Lists via the internet, using either an online form or an upload facility for CSV or XML files, or via a new XML channel using a bespoke or commercial software package. Find out about the EC Sales List service on the HMRC website.

You must also keep records of your commercial invoices and number them sequentially. If you have a high level of sales of goods to EU countries you may need to submit an Intrastat Supplementary Declaration. For more information, see our guide on an introduction to Intrastat.

The services you provide to other businesses are charged VAT where your customer is based, not where your business is established. If you are supplying services to private customers, VAT is charged where the customer is based.

In most cases, you and your customers can use the VAT reverse charge procedure to get your VAT back.

If you aren't sure if your customer is in business, ask them for a VAT number. If the customer is not VAT registered, then you can use other evidence, such as letters from their tax authority. Download guidance on changes to the place and time of supply of services rules on the HMRC website (PDF, 74K).

If your business exports to countries outside the EU or supplies goods or services to other VAT-registered customers within the EU, you must retain documents to prove that the goods have left the UK.

Documents must identify:



you, as the supplier of the goods
the person responsible for transporting the goods (if different from the supplier)
the customer
the goods and an accurate value
the destination of the goods
the mode of transport and the route
For more information read our guide on excise and VAT in international trade and read about VAT on exports to countries outside the EU from the HMRC website.

Read our guide on how to pay VAT.



VAT rates for goods traded within the European Union

There are different VAT rules for the trading of goods within the European Union (EU), depending on whether you are selling to other VAT-registered businesses or to consumers.

If you sell goods direct to consumers or non VAT-registered businesses, you must charge VAT at the appropriate UK rate, ie at the standard rate of 20 per cent, the reduced rate of 5 per cent or the zero rate. Some goods are exempt from VAT altogether. See our guide on rates of VAT on different goods and services.

You will need to complete an Intrastat declaration if your sales to private individuals or non-VAT registered businesses and/or your purchases from private individuals or non-VAT registered businesses exceed the annual threshold. Intrastat thresholds are reviewed annually. The 2011 thresholds are £600,000 for Arrivals and £250,000 for Dispatches.

See our guide on an introduction to Intrastat.

Read a guide to VAT within the EU single market on the HM Revenue & Customs (HMRC) website.

See the page on VAT on sales to someone who isn't VAT registered in another EU country in our guide on exports, despatches, supplying goods abroad: charging VAT.

If you are selling goods to other VAT-registered businesses in EU countries, you may be able to zero-rate the sales if you meet certain conditions, and you must include them on your usual VAT return and complete an Intrastat return if your sales exceed the annual threshold.

All EU countries apply a standard VAT rate of at least 15 per cent, although it can be as high as 25 per cent. Each EU country individually defines what products qualify for reduced rates. To find current EU VAT rates, see the page on tax rates in European Union Member States in our guide on taxation law in Europe.

See the page on VAT on sales to someone who is VAT registered in another EU country in our guide on exports, despatches, supplying goods abroad: charging VAT.

If you provide services to other businesses in the EU, VAT is charged in the country in which your customer is based, not where your business is established. If you are supplying services to private customers, VAT is charged where the customer is based.

In most cases, you and your customers can use the VAT reverse charge procedure to get your VAT back.

If you aren't sure if your customer is in business, ask them for a VAT number.

If the customer is not VAT registered, then you can use other evidence, such as letters from their tax authority.

Download guidance on changes to the place and time of supply of services rules on the HMRC website (PDF, 73K).




Here's how we handle excise and VAT in international trade

Jaclyn McKie
Isle of Arran Distillers Ltd

Jaclyn's top tips
"Having a good distributor makes all the difference. They can help with all the local issues - not just sales and marketing but the practicalities of shipping and tax."
"Keeping a small number of distributors - ideally one in each territory - significantly reduces the amount of administration you have to do. The more distributors you have, the more chance there is of them trying to compete against each other in their own marketplace with your brand, and this can cause a real conflict of interests."
"If you're not sure what's the most effective way to handle exporting and VAT and duty management, find out what other businesses like yours are doing. If many of them are working in a similar way, there's probably a good reason for it."


Scotch whisky distillery, Isle of Arran Distillers Ltd, exports to around 40 overseas territories through a network of sole distributors. Jaclyn McKie, the distillery's sales manager, explains how they manage excise duties and VAT issues from their base in the Isle of Arran through to their target markets.

What I did


Sell only Ex-Works

"For a business like ours, it's always much easier to sell under the Ex-Works Incoterm which places less responsibility on us and greater responsibility on the buyer. We also always ship our goods into bonded warehouses, which means that local taxes and duties are only payable when our goods are released into the target export markets.

"Effectively, this means we can move them duty-free, which is essential to us. If we had to pay duty before the goods moved, we'd need to raise a significant amount of working capital to cover the time between shipping and receiving payment for the goods, which would be crippling."

Consider the impact of duties on pricing


"Of course, each of our markets has slightly different rates of VAT and excise, which can get complex. For example, in Canada we work with seven liquor boards, each of which raises different rates of duty dependent on the region of the country. We've got to consider how we manage that - we need to be sure our goods are on the shelves at the right price point compared with our competitors.

"What we generally do is have a price list that is standardised as much as possible, although we will work with our local distributors to get the retail pricing just right when we need to. This means that there has to be a bit of flexibility sometimes on our part, as well as our distributors. It's easier to handle in some places than others - we manage to have a European Union-wide price list, for example."

Have a specialist team dealing with international transport and tax issues
"We've got a planning manager who's well trained in the movement of goods and it makes a real difference. They understand Incoterms and methods of shipping in great detail and you need that sort of central control to make sure everything runs smoothly. Otherwise, with some potentially complex issues in moving excise goods around the world, it can get really difficult."

What I'd do differently


Always stick to your guns
"Sometimes we have had requests to ship to customers' central warehouses so they can distribute onwards. It really isn't a good idea for us - as it means that we have to bear the cost of additional transport to the central warehouse and these costs can mount up. Sometimes it's better to decline the order for the overall good of the business."




HMRC Tariff Classification Service Enquiry Line
01702 366 077


HMRC SIVA Enquiry Line
01702 367 425


Related guides on businesslink.gov.uk
How to pay VAT

Problems paying HMRC: advice for businesses, individuals and tax agents

Use our interactive tool to understand your tax obligations when importing and exporting

Introduction to Intrastat

Importing - an overview

Trading in the European Union

Introduction to the Tariff

Do it online

Imports and purchases from abroad: paying and reclaiming VAT

Exporting - an overview

International trade in services

Related web sites you might find useful
Import VAT guidance on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000199&propertyType=document

EU single market VAT guidance on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000152&propertyType=document

Declaration of imports form (C88) on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_Forms&propertyType=document&id=HMCE_CL_000465

Recent entrants to the EU for VAT purposes on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000199&propertyType=document#P451_61325

Imported goods valuation for customs purposes explained on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000230&propertyType=document

VAT and import duty deferment advice on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000013&propertyType=document

Import VAT reclamation advice on the HMRC website
http://www.hmrc.gov.uk/vat/managing/reclaiming

EU single market VAT guidance on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000152&propertyType=document

Export VAT guidance on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000130&propertyType=document

Download guidance on changes to the place and time of supply of services rules from the HMRC website (PDF, 73K)
http://www.hmrc.gov.uk/vat/place-supply-services.pdf

Recent entrants to the EU for VAT purposes on the HMRC website
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&featurearticle=true&id=HMCE_PROD_008125

Download EU VAT rates from the Europa website (PDF, 453K)
http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf



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