When a business exports goods, the sale can be zero rated, but the zero rate is on the basis that the business holds evidence of export. In this curious case, HMRC applied the wrong logic entirely and then double downed at the review stage, ending with the Tribunal being less than impressed.
The taxpayer would buy medical syringes from a UK supplier and repackage them at his home before posting them to customers based in the USA. Each package had an invoice, a CP72 export document and was sent via the Post Office and certificate of postings/tracking details obtained.
VAT Notice 703 at paragraph 3.3 states “A supply of goods sent to a destination outside the UK are liable to the zero-rate where you:
- Make sure that the goods are exported from the UK within the specified time limit
- Obtain official/commercial evidence of export within the specified time limits
- Keep supplementary evidence of the export transaction
(These bullet points have the force of law)
Paragraph 3.5 specifies that the time limit for exporting the goods and for obtaining the relevant evidence is in each case three months from the time of the supply.
Paragraph 6.1 sets out the evidence that is required for a supply of exported goods to be zero-rated for VAT.
“For VAT zero rating purposes you must produce official evidence and/or commercial evidence. These must be supported by supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported”.
Paragraphs 6.2 and 6.3 give examples of official evidence and commercial evidence such as bills of lading, etc. Paragraph 6.4 sets out what supplementary evidence is available to support the claim, such as customer order, export invoice, consignment note, evidence of payment, etc.
There were some anomalies in the taxpayers paperwork but crucially, the Officer stated the main reason for assessment was the taxpayer had not supplied to HMRC the export evidence within 3 months. The Officer told the Tribunal that had the taxpayer given the main/supplementary evidence to HMRC within 3 months of each export, HMRC would have accepted the export evidence for zero rating purposes.
Just to reiterate, HMRC were saying the assessment was because the taxpayer had acceptable evidence of export but that the law required the taxpayer to physically give that paperwork to HMRC within 3 months of each and every export. That is not what the law says.
Tribunal concluded that HMRC have made two errors in law. Firstly, the 3 month period for obtaining evidence does not mean the taxpayer has to provide that evidence to HMRC within 3 months, it simply means the taxpayer must hold the evidence in their records within 3 months of the transaction.
The second error being that HMRC was of the view that all the evidence of export must be contained within a single document (the CP72), ignoring established case law and HMRC’s own guidance that a basket of evidence from a variety of sources is acceptable forms of evidence.
The Tribunal concluded “This error was started by Officer Bains, perpetuated by the nonsense written by the review officer, and then compounded by HMRC’s statement of case and skeleton argument. If there was ever a counsel of perfection for the provision of export documentation, then this appellant has achieved it and we have absolutely no hesitation in allowing this appeal.”
It is concerning that HMRC could go so wrong on such a basic concept, more concerning is that the reviewing officer also took the same illogical approach as the original HMRC Officer.
Get in touch
If you feel that you are misrepresented or not in agreement with a decision taken by HMRC regarding a business or complex VAT matters, it is worthwhile you seeking advice from a VAT expert.
Here at Rayner Essex we tend to take the view that a business should not automatically accept an assessment from HMRC and should seek an opinion before accepting the outcome or taking a route to challenging the assessment. Our Vat experts have a deep understanding of VAT and have first-hand experience in dealing with HMRC on many VAT matters, knowing the their stance on various issues, and are well placed to advise you as to whether your dispute has any chance of success, and whether it is viable. We have extensive tribunal experience and can represent you for a positive outcome.
If your business exports goods, then it is also perhaps a good time to review your procedures and your basket of evidence and ensure it is sufficient to withstand an enquiry from HMRC.
Whatever your HMRC query or concern is, contact our VAT expert who will be happy to help you today.
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