Important HMRC decision highlights importance of ‘Ownership’ for import VAT reclaim
Nick Crouch · January 16th 2024 · read
A recent decision by a UK tribunal has highlighted the issue of ‘ownership of goods’ and the eligibility to reclaim import VAT. The appellant, Piramal Healthcare UK Ltd, was required to repay £196,254 on the importation of goods.
In the case of Piramal Healthcare UK Ltd, HMRC raised assessments, totalling £196,254, to request the VAT reclaimed by Piramal on import of goods. Piramal, a pharmaceutical company that imported goods into the UK for packaging and paid import VAT as it was named as the importer.
As Piramal was only undertaking a packaging process on the goods, its client remained the owner. HMRC argued that, as Piramal did not purchase the imported goods, it had no right to reclaim the import VAT it incurred. The Tribunal agreed with HMRC, upholding the assessments.
The case is very important as it highlights HMRC’s policy on ‘ownership’, which is critical when determining who must be declared as the importer. As imports have increased due to Brexit, this issue may pose a hidden challenge for many UK businesses.
As this is a VAT risk, the errors will be identified by a VAT Officer so a company may not realise the risks until it is too late.
Recently, we have seen an increase in enquiries from clients who have imported goods and have experienced the same issue as Piramal. In these cases, the import VAT becomes a cost to the declared importer which is usually very difficult to resolve.
The issue is particularly prominent for UK-EU supply chains due to the regular use of the Delivered Duty Paid (DDP) Incoterm. Sellers are trading under the DDP term without fully understanding the implications from a VAT perspective. This has been exacerbated by the lack of understanding within freight sector who have readily declared the buyer as the importer. This is, in part, to waive the application of Indirect Representation but, as MHA have recently experienced, this is now being examined by HMRC and customs agents are incurring significant assessments where errors are identified by HMRC.
The ownership issue extends to importers who receive goods on loan, or provide a repair service as these businesses do not take title to the goods. Consequently, any import VAT paid, or postponed, cannot be reclaimed by the importer. MHA have advised a number of clients on this matter and assisted with applications for Temporary Admission and Inward Processing to mitigate the VAT risk.
To avoid complications, businesses should ensure their eligibility to reclaim import VAT before importing goods in their name. MHA can help your business understand the risks in its supply chain and advise on a course of action to resolve any non-refundable import VAT. For further assistance, our Customs Team is available to provide support and education to minimise the risk of HMRC action on your company.
Get in touch
To discuss the issue further, please contact Nick Crouch in the Customs and Excise Duty team using the button below.