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									The ABC’s of VAT
Presented By:
Robert E. Whittall, Partner
Cohen & Company



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Agenda

•   Overview of Incoterms
•   General operation of VAT
•   International Trade and VAT
•   Questions




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                                                               Is Understanding VAT Important?

                                                               • Incoterms review
                                                                   –   Definition
                                                                   –   Groups
                                                                   –   DDU vs. DDP
                                                                   –   The impact of VAT on terms of sale




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Incoterms or international commerce terms is a series of international sales terms that is widely used throughout the world, divides transaction costs and responsibilities
between buyer and seller, reflects state of the art transportation practices and closely corresponds to the U.N. Convention on Contracts for the International Sale of Goods.

Incoterms deal with the questions related to the delivery of the products from the seller to the buyer. This includes the carriage of products, export and import clearance
responsibilities, who pays for what, and who has risk for the condition of the products at different locations within the transport process. Incoterms are always used with a
geographical location and do not deal with transfer of title.

They are devised and published by the International Chamber of Commerce (ICC). The English text is the original and official version of Incoterms 2000, which have been endorsed
by the United Nations Commission on International Trade Law (UNCITRAL). Authorized translations into 31 languages are available from ICC national committees
Terms of Sale

• What are the Incoterms?
• Groups - E, F, C, D
• Most common terms
   – EXW, FOB, CIF, DDU, DDP (named place)
• Shipper chooses transportation agent and pays for
  transport when terms are “C” or “D”
• Consignee pays for freight and chooses the
  transport agent for terms “E” and “F”


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                INCOTERMS
            :             :              :              :
E Terms         F Terms        C Terms        D Terms
            :             :              :              :
            :             :              :              :
Shipper’s       Port of        Port of       Consignee’s
            :             :              :              :
 Dock           Export         Arrival        Dock
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :
            :             :              :              :

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DDU vs. DDP

• DDU – Delivered Duty Unpaid
   – Shipper pays for all transportation
   – Consignee pays for duty, taxes and customs clearance
   – Generally preferred to DDP
• DDP – Delivered Duty Paid
   – Shipper pays for EVERYTHING, including: transportation, duty,
     taxes, VAT and customs clearance
       • Even if the rules and rates change in transit
   – Consignee pays for NOTHING
   – VAT Tax
       • When paid by the shipper it is an expense
       • When paid by the consignee in country, it is a pass through



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General Operation of VAT




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                                                                                             What is VAT?

                                                                                             • An indirect tax on business transactions
                                                                                             • A tax on consumer expenditure
                                                                                             • Suppliers charge output tax
                                                                                             • It’s payable on supplies
                                                                                             • VAT registered customers can recover input
                                                                                               tax
                                                                                             • It’s a tax on imports

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Example
Consider the manufacture and sale of any item, which in this case we will call a widget.

Without any sales tax
A widget manufacturer spends $1 on raw materials and uses them to make a widget. The widget is sold wholesale to a widget retailer for $1.20, leaving a profit of $0.20. The widget retailer then sells the widget to a widget consumer for $1.50, making a profit of $0.30.

With a North American (Canadian provincial and U.S. state) sales tax
With a 10% sales tax: The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer. The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same profit of $0.20. The retailer charges the consumer
$1.65 ($1.50 + $1.50x10%) and pays the government $0.15, leaving the same profit of $0.30.

So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The retailers have not lost anything directly to the tax, and retailers have the extra paperwork to do so that they correctly pass
on to the government the sales tax they collect. Suppliers and manufacturers have the administrative burden of supplying correct certifications, and checking that their customers (retailers) aren't consumers.

With a value added tax
With a 10% VAT: The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of the raw materials pays the government $0.10. The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10),
leaving the same profit of $0.20. The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the profit of $0.30 (1.65-1.32-.03). So the consumer has paid 10% ($0.15) extra, compared to the no taxation
scheme, and the government has collected this amount in taxation. The businesses have not lost anything directly to the tax. They do not need to request certifications from purchasers who are not end users, but they do have the extra accounting to do so that they
correctly pass on to the government the difference between what they collect in VAT (output VAT, an 11th of their income) and what they spend in VAT (input VAT, an 11th of their expenditure).
Note that in each case the VAT paid is equal to 10% of the profit, or 'value added'.
When is VAT
Payable on Supplies?
• When the supply is made by a taxable
  person
• In the pursuit of a business
• It’s not payable on zero-rated supplies;
• Exempt supplies; or,
• Supplies outside the scope of VAT



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                                                                               Zero-rated
                                                                               and Exempt Supplies
                                                                               • What are the differences between zero-rated
                                                                                 and exempt supplies?
                                                                                    – Schedule 8
                                                                                    – Schedule 9
                                                                               • Why is this important?




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SCHEDULE 8: ZERO-RATING
Group 1          Food
Group 2          Sewerage services and water
Group 3          Books, etc
Group 4          Talking books for the blind and handicapped and wireless sets for the blind
Group 5          Construction of buildings, etc
Group 6          Protected buildings
Group 7          International services
Group 8          Transport
Group 9          Caravans and houseboats
Group 10         Gold
Group 11         Bank notes
Group 12         Drugs, medicines, aids for the handicapped, etc
Group 13         Imports, exports etc
Group 14         Tax-free shops
Group 15         Charities etc
Group 16         Clothing and footwear
SCHEDULE 9: EXEMPTIONS
Group 1          Land
Group 2          Insurance
Group 3          Postal services
Group 4          Betting, gaming and lotteries
Group 5          Finance
Group 6          Education
Group 7          Health and welfare
Group 8          Burial and cremation
Group 9          Trade unions and professional bodies
Group 10         Sport, sports competitions and physical education
Group 11         Works of art etc
Group 12         Fund-raising events by charities and other qualifying bodies
Group 13         Cultural services
Group 14         Goods with input tax recovery blocked
Group 15         Investment Gold

Note the following:
•Exempt supplies are not taken into account in calculating turnover for registration
•Traders making exempt supplies cannot recover their input tax
•Traders making a mixture of taxable and exempt supplies are “partially exempt” and recover a proportion of their input tax
•Traders making standard-rated and zero-rated supplies (known as “taxable supplies”) can recover their input tax
Business Activities

• What is a business activity?
  – Supplies made for a consideration in the pursuit
    of business
• Who can carry out business activities?
  –   Trades
  –   Charities
  –   Clubs
  –   Government bodies

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What is a Supply
of Goods?
• Passing of exclusive ownership, whether or
  not for a consideration
• Gifts of goods over £50
• Samples
• Examples
  – Normal sale and delivery of goods
  – Transferring goods permanently out of the
    business

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What is a Supply
of Services?
• Anything done for a consideration other
  than the supply of goods
• Services supplied for no consideration are
  treated as non-supplies




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                                                               Registration/Deregistration

                                                               • Who should register?
                                                                   – Mandatory versus voluntary
                                                                   – Registration threshold - £67,000 p.a.
                                                                   – Planning opportunities
                                                               • When can a business deregister?
                                                               • When must a business deregister?



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Registration
•Businesses with taxable supplies in excess of threshold
•Business can voluntarily register even though taxable supplies are below threshold
•Under anti-avoidance measures separate businesses can be treated as one
        •So you cannot just set up several businesses to try and remain under registration threshold

•Registration examples
•Example 1
         •ABC Ltd. calculates that, in the year to 30/4/08, its standard-rated supplies have been £56,000, its zero-rated supplies £12,000, and its exempt supplies £3,000
         •When must it notify HMRC?
                  •By 30th May 2008
         •When will registration be effective from?
                  •1st June 2008
•Example 2
         •XYZ Ltd. is not registered for VAT but on 17th May 2008 it enters a contract to sell goods to the value of £70,000 on 10th June 2008.
         •When must it notify HMRC?
                  •By 16th June 2008
         •When will registration be effective from?
                  •From 17th May 2008

•Deregistration
         •When can a business deregister?
                •When its taxable supplies in the next year are likely to fall below the deregistration threshold i.e., £65,000
         •When must a business deregister?
                •Within 30 days of ceasing to make taxable supplies
                •VAT must be accounted for on certain business assets on hand on the last day of registration.
                                                        Group Registration

                                                        • Who can apply?
                                                           – Companies under common control
                                                        • How does it work?
                                                           – All companies treated as a single taxable person
                                                           – One company nominated as representative
                                                             member, completes return and accounts for
                                                             VAT
                                                           – Supplies between companies outside scope of
                                                             VAT

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To be under common control , there has to be more than 50% common ownership
Place of Supply

• Where is the place of supply for goods?
  – Where they are physically located when
    allocated to a customer’s order
  – If built or assembled on site, where the site is




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Place of Supply

• Where is the place of supply for services?
  – Generally, where the supplier of the services
    belong
  – If related to “Land” where the land is situated
  – If related to “performers” where the service is
    physically performed
  – If “intellectual” service where the customer
    belongs


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Example

• A UK company transfers goods to its
  warehouse in Milan, from where it sells
  goods to Italian customers
• Where is the place of supply?
  – Italy
  – The UK company should register for VAT in
    Italy



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                                                                     Time of Supply

                                                                     • Why is the time of supply important?
                                                                     • Basic tax point versus actual tax point




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Time of Supply
•It determines the period for accounting for VAT
•It establishes rate of tax to be applied
•Influences registration
•Can affect recoverability of input VAT

•Basic tax point
          •When is the basic tax point for Goods
                    •Date goods are “removed” or “made available”
          •When is the basic tax point for Services
                    •The date when all work except outstanding invoice is complete

•Actual tax point
          •When can the basic tax point be overridden by actual tax point?
                   •By issuing a tax invoice before the basic tax point
                   •By receiving a payment before the basic tax point
                   •By issuing a tax invoice up to 14 days after the basic tax point
          •What happens if you issue a tax invoice more than 14 days after the basic tax point?
                   •The basic tax point applies unless it is common practice to invoice monthly and you apply in writing
Time of Supply Example

• Example
  – Goods are sent to a customer on 27th April.
    The invoice is sent on 3rd May. When is the
    time of the supply
     • 3rd May (Unless payment is received earlier)
  – If the invoice is sent on 12th May, when is the
    time of supply?
     • 27th April – the invoice is more than 14 days after
       the basic tax point


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     Value Added Tax

      How VAT Works
                       £100.00               £200.00              £300.00
                                             + VAT                + VAT

Wood Merchant                    Carpenter             Supplier             Customer
(Not VAT Registered)




                                 £ 30.00                £ 45.00
                                                       (£30.00)
                                 £ 30.00                £ 15.00


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    Value Added Tax

     How VAT Works
                    £100.00               £200.00               £300.00
                    + VAT                 + VAT                 + VAT

Wood Merchant                 Carpenter              Supplier             Customer
 (VAT registered)




  £ 15.00                      £ 30.00               £ 45.00
                              (£15.00)              (£30.00)
  £ 15.00                      £ 15.00               £ 15.00


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                                                                                                 Penalties

                                                                                                 • What financial penalties can you incur?
                                                                                                       –   Default interest
                                                                                                       –   Default surcharges
                                                                                                       –   Misdeclaration penalties
                                                                                                       –   Civil evasion penalty




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What do you do if you know you have made a mistake:
            •Errors in the last 3 years must be corrected
            •If net error is no greater than £2,000 include on next VAT return
            •If net error is greater than £2,000 you need to disclose by letter or on Form VAT 652

What is default interest?
•It is interest on VAT recovered or recoverable by assessment including notices of voluntary disclosure
•It is only applied where it represents genuine commercial restitution, it is not applied when there is no loss to the Exchequer

What is a default surcharge?
•It is a penalty for late payment of tax liabilities
How does it operate?
•If you miss one payment a surcharge liability notice will be issued which operates for one year.
What happens if you miss a 2nd payment within the surcharge period?
•Another surcharge liability notice is issued to operate for a year and a penalty of 2% of tax due is levied.
What happens if I miss a 3rd in the new surcharge period?
•The surcharge notice is extended to operate for a further year and a penalty of 5% of tax due is levied.
What happens if I miss a 4th in the new surcharge period?
•The surcharge notice is extended to operate for a further year and a penalty of 10% of tax due is levied.
What happens if I miss a 5th in the new surcharge period?
•The surcharge notice is extended to operate for a further year and a penalty of 15% of tax due is levied.

What is misdeclaration penalty?
•15% of the error, if the error exceeds £1M or 30% of “Gross Amount of Tax” whichever is the lower
             •What is the “Gross Amount of Tax?”
                             •It is the sum of the correct amounts of output tax and input tax for the relevant period.

What is a civil evasion penalty?
•It is issued when on the balance of probabilities VAT has been evaded by taking or omitting to take a particular course of action.
               •How is it calculated?
                              •100% of tax evaded
                              •However, if you co-operate with the investigation penalty can be “discounted” up to 80% making the penalty 20% of tax evaded.
               •If I appeal and the dishonesty charge is dropped, what happens?
                              •You would be subject to misdeclaration penalties if appropriate.
International Trade and VAT




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                                                                Introduction

                                                                                           Acquisition
                                                                    UK                                                 Europe
                                                                                            Dispatch
                                                                                                                        (EU)


                                                                                  Export


                                                                      Import
                                                                                           Rest of
                                                                                           World




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If a trader sells goods from the UK to a customer in the rest of the world, that sale is called an export.
If he purchases goods from a supplier in the rest of the world, that is known as an import of goods.
If he sells goods to a customer in the EU this is called a dispatch. By the same
token a purchase of goods from a supplier in the EU, is known as an acquisition.
                                                              VAT and Non-Member
                                                              States of EU
                                                              • Should we charge output tax on exports?
                                                                  – Zero rated
                                                              • Should we be charged input VAT on
                                                                imports?
                                                                  – Yes, the Customs raise a C79 once the customs
                                                                    formalities are complete




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EXPORTS

Exports are where a trader sells goods to a customer based in the rest of the world. The place of supply of exported goods is generally in the UK.
The export is then a zero-rated supply by reason of s.30(6) VATA 1994. It is irrelevant of what type of goods being sold overseas.

There are great demands placed on a trader to obtain the necessary evidence that the goods he sold have been exported within three months of the time of the supply. The sort of
evidence that Customs will accept is a Bill of lading, an Air Waybill or other commercial evidence. The evidence must identify the goods and their manner of transport and, if a
freight forwarder service was used, the freight forwarder.

For exports by post it is possible to get a Certificate of Posting or other evidence of shipment and there are similar arrangements for exports via a
courier or a fast parcel service etc. Customs need to ensure that the goods were actually exported and, hence, it is essential that a trader keeps evidence of the export of those
goods.

IMPORTS

The problem with imports of goods is that lots of overseas countries have very similar rules to the UK. Consequently goods come into the UK having borne no equivalent of VAT.
The place of supply of imported goods is generally outside the UK by reason on s.7(7)b VATA 1994.

The 'problem' with this, from a UK point of view, is best illustrated with an example. An unregistered UK business needs some widgets - if bought in the UK it would pay 15% VAT
on top of the price. However, if the trader went to America to buy them, they would be shipped VAT (or equivalent tax) free. So it could be cheaper for the trader to buy goods from
America than to buy them in the UK. To counter this, Customs add on the equivalent of the UK tax that would have been charged if the goods had been supplied in the UK. This
VAT charge is made when the goods arrive at the port of entry into the UK and is to prevent distortion of trade.
                                                              VAT and Non-Member
                                                              States of EU
                                                              • How is it calculated?
                                                                 – It is calculated on the Customs value which
                                                                   comprises: The value of the goods; all
                                                                   associated expenses; duties payable on
                                                                   importation
                                                              • Can we recover the input tax on the C79?
                                                                 – Yes, if they are otherwise taxable supplies



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IMPORTS

Customs will need to value the goods (or rather the importer values the goods for Customs) and Customs applies the appropriate rate of VAT to those goods. The rate of VAT
applied is whatever rate would have been applied if the goods had been bought in the UK. That amount of VAT is charged to the person who wants to take the goods out of the port
and bring them to their UK business premises.

The import VAT can either be paid straight away or, for regular importers, a line of credit can be set up with Customs to allow deferred payment. Whatever happens an amount of
VAT will have to be paid on those goods if they are to move from the port to the business premises in the UK.

The VAT paid to import the goods is treated like any other type of input VAT and so will be deducted in the next VAT return in the normal way. The VAT is only paid to put the trader
into the same position whether he buys goods in the UK or he buys goods overseas; there will be the appropriate input tax on both and the location of the supplier should be
irrelevant. The purchaser will then deduct the input tax in the normal way depending on the use that he makes of those goods.
                                                                               VAT Cash Flow Management

                                                                               • Duty deferment scheme
                                                                               • Import agent
                                                                               • Customs procedure
                                                                                   – Bonded warehouse
                                                                                   – Entry into a free zone
                                                                                   – Temporary importation




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Import VAT can be paid at a later date under the duty deferment scheme. There is usually a credit limit that applies to the scheme which is, more often than not, 100% of the estimated maximum monthly debt for VAT. Bank
guarantees are required to support this credit limit. The import VAT on a month's imports are then all paid on the 15th day of the following month, or the next working day if this is not a working day.

Following FA2003 with effect from 1 December 2003 approved importers are able to provide reduced, possibly even zero security, in relation to the import VAT element, when it comes to the duty deferment scheme.

The duty deferment scheme gives some cash flow relief. If there is no duty deferment guarantee in place then Customs will require payment before they release the goods from the port of entry and payment can be made by
cheque, cash or banker's draft. Cash or banker's draft will mean the goods can be released immediately but if payment is made by cheque, evidence that the cheque will clear needs to be made available before the goods can be
released by Customs.

As an alternative to a trader importing goods himself, an import agent could be used to clear the goods. If a business only occasionally imports goods, it is a good idea to use an import agent because they are familiar with the
paperwork and the rules that go with importing goods. The import agent can also use a deferment account to obtain the release of goods. The agent will recover the import VAT from the importer. An import agent has got to make
sure the actual importer, the business, is shown on the paperwork so that the entitlement to input tax credit will be available to that business.

Import VAT does not have to be paid on goods entering a port if they are declared for a "Customs procedure" which allows suspension of VAT. The various procedures which allow suspensions are where goods are going to be
stored in a bonded warehouse or an entry into a free zone or for temporary importation or for transit or trans-shipment.

Some goods are relieved from the necessity to pay import VAT. Examples are goods which have been exported and then re-imported in the some state without any sort of repair abroad, goods imported for private purposes where
the value includes VAT paid in an EU member state, legacies, duty free allowances from journeys outside the EU.
                                                             VAT and Member
                                                             States of EU
                                                             • Should Output Tax be charged on “EC sales”?
                                                                – Zero rated
                                                                – If the customer is VAT registered they should give you
                                                                  their VAT registration number
                                                                – Which along with your VAT number should be shown
                                                                  on the invoice with the country codes
                                                                – Remember the goods must physically move from one
                                                                  member state to the other member state




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Dispatches are where a trader sells goods to a customer in the EU. The place of supply is the UK as goods are removed from the UK without also involving their previous removal
to the UK.

Whether the trader charges VAT on the dispatch depends on the status of his European customer. If the European customer is VAT registered in his EC member state and he gives
the UK trader his VAT registration number, then the UK trader will zero-rate the supply of goods to his business customer.

If however the customer is not VAT registered in his EU member state, then the UK trader charges him UK VAT at the rate that would be appropriate to the goods being sold in the
UK. So if a trader is selling women's clothing he would charge standard rate VAT at 15%. If he was selling apples he would charge 0% VAT because they are zero-rated. The UK
trader treats the overseas customer as a UK customer and charges the appropriate rate of VAT in the normal way.

There are no port formalities within the European Union so when a UK trader sends goods from the UK to Europe they are not held up at the port of entry into that European
country. They go straight to the premises of the customer.

http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN this website will help you verify the validlity of a VAT number issued by a Member State
                                                                VAT and Member
                                                                States of EU
                                                                • Should we be charged input tax on “EC
                                                                  Acquisitions”?
                                                                    – Again zero-rated by supplier in other member
                                                                      state
                                                                • What is Acquisitions VAT?
                                                                    – It is the VAT you calculate on value of the
                                                                      acquisition



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An acquisition is where the supplier is based in the EU and he supplies goods to a trader in the UK. The basic place of supply is outside the UK by reason of s.7(7)b VATA 1994.
The goods are, however, deemed to be UK acquisitions by reason of s.13 VATA 1994.

There are no port formalities for transfers of goods between EU member states. So the supplier will send his goods from Europe to the trader in the UK and they will not be held at
the port of entry into the UK. Thus there will be no VAT being accounted for. when the goods reach the port of entry.

Acquisitions work in a mirror-image way to dispatches so if the UK trader has given the European supplier his VAT registration number in the UK, the supplier will effectively zero-
rate (in his own country) the supply of goods to the UK trader. If the UK trader has not given the supplier his VAT registration number then the supplier will charge the UK trader his
local rate of VAT on those goods as appropriate.

If we assume that the UK customer has a UK VAT number, the goods will come to him free of any foreign VAT. However, Customs are not going to tolerate a situation where a
trader can buy something VAT free from Europe but have to pay VAT for the some goods if he buys them in the UK. This time however Customs do not have the option of holding
the goods at the port of entry and making the UK trader pay some VAT to release the goods.

Instead the trader must charge himself VAT on those goods on his next VAT return. Thus he has to pay over an amount of VAT that would have been charged on those goods if
they had been purchased in the UK by putting that VAT into the output VAT box (i.e. Box 2) on his next VAT return.

By the same token, this VAT is now input tax for the trader which he can recover on the same VAT return in the normal way (i.e. Box 4) as long as he has used those goods in
making taxable supplies.

For a fully taxable business, there will be a nil effect in the VAT return – the amount of tax going into the output tax box will equal the amount in the input tax box. Only partially
exempt traders will have anything to pay from such an acquisition.
Place of Supply - Goods

                               UK Co           2n
                         ice                     d
                                                     inv
                      vo                                oic
                 t in
                                                              e
               1s

USA Co                                                            France Co
                               Goods

Place of supply?
If goods do not touch UK soil, there is no UK supply.
VAT treatment depends on who acts as importer in France.
a) If USA Co acts as importer, both supplies take place in France.
  b) If UK Co acts as importer, supply 1 is outside scope of EU VAT,
      supply 2 takes place in France.
  c) If French Co acts as importer, both supplies take place outside EU.



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Place of Supply - Goods

   UK
                          Invoice
   UK Co A                          1
               goods                    German Co
   UK Co B                          2
                         Invoice


• Goods do not leave the UK –
• So supply 1 is a supply in the UK and subject to UK
  VAT.
• Supply 2 is a supply by the German Co in the UK
  and it may be liable to register in the UK.

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Place of Supply - Goods

                     Goods
 UK Co                                      Swedish Co

     In v
         oic                                e2
               e1                     oic
                    Japan Co      In v


• Goods leave UK, but if Japanese Co not registered
  in EU, UK VAT must be charged to Japanese Co
• Japanese Co makes supply of goods in EU and
  may be required to register as a result.

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                                                               Triangulation

                                                                                         UKco (UK)


                                                                  Invoice                                        Invoice




                                                                Fco (France)              Goods                 Gco (Germany)


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Triangulation is the term used to describe a chain of intra-EC supplies of goods involving three parties. But instead of the goods physically passing from one to the other, they are
delivered directly from the first to the last party in the chain.

See Section 13 of HMRC Notice 725 The Single Market for detailed explanation.
                                                             Distance Selling

                                                             • Sales to non-registered persons in other EU
                                                               member states
                                                             • When distance selling threshold is exceeded,
                                                               trader is required to register for VAT in
                                                               respective EU country.
                                                             • Threshold varies between countries
                                                                 – it is either €35,000 or €100,000


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The distance selling legislation applies to sales to non-registered persons in other EU member states       - so from one EU member state to the other EU member state,
Basically it affects mail order traders.

For example a trader sells women's clothing mail order to non-VAT registered customers in Denmark. Under the current rules, he makes a dispatch and would charge the UK rate
of VAT, 15%, to those Danish customers. This may not sound like any advantage at all but the rate of VAT in Denmark is 25%. Thus there is a difference when it comes to the VAT
being charged on the goods. The Danish customers may therefore find that it is cheaper to buy goods from the UK than to go to their local Danish shop.

The distance selling legislation allows some mail order sales but once the cumulative value in a year of the mail order sales exceeds the distance selling threshold the trader is
required to register for VAT in Denmark. Then the sales are treated as going from the UK registered business to the Danish registered business - so a zero-rated dispatch. There is
then a sale from the Danish registered business to the Danish customers, hence a requirement to charge the Danish rate of VAT.

The distance selling threshold varies between different EU member states; it is either 35,000 ECUs or 100,000 ECUs. The UK has gone for the higher limit and in sterling equates
to a £70,000 threshold. For anyone from another member state selling mail order into the UK it is only once their cumulative turnover exceeds £70,000 that the distance selling
legislation requires them to register for VAT in the UK. The test is on a calendar year basis.
                                                                                                   VAT Paperwork

                                                                                                   • Export – evidence to prove goods were
                                                                                                     exported
                                                                                                   • Import – valuation forms
                                                                                                   • Acquisitions & dispatches
                                                                                                         – Intrastat
                                                                                                         – EC Sales List – only applies to dispatches




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When it comes to acquisitions and dispatches there is also considerable paperwork for a business. In particular, there are two returns of importance.

The first return is called the Intrastat, or the Supplementary Statistical Declaration (55D). There is an acquisitions intrastat and a dispatches intrastat. These are required if the total value of acquisitions or dispatches exceeds £270,000 (from 1 January 2009) in value in a
year. The intrastat must be completed and submitted within one month of the end of the relevant month, i.e. the end of the month of arrival or the end of the month of dispatch. Nil returns are not required however. A failure to submit an intrastat when required is a
criminal offence.

The details required on an intrastat are:
•The commodity code of the goods (each type of goods has a separate classification code);
•The VAT exclusive value in sterling;
•The terms of delivery;
•The nature of the transaction so is it a sale or a lease etc., and this is identified by a two digit code;
•The net mass of goods in kilograms;
•The member state of arrival or dispatch; and
•The mode of transport.

The other return that has to be completed only applies to dispatches and is called the EC Sales List or ECSL. It shows the value of supplies made to each customer, with each customer being identified by their VAT registration number in the appropriate Member State.
EC sales listings must be submitted quarterly within 42 days of the end of the quarter. It is possible to make an annual submission of an EC sales listing if taxable turnover does not exceed £72,500 or, the sales to EU customers does not exceed £ 11,000.

Most traders selling to EC member states will have to fill in an EC sales list and if it is wrong or if it is late, there are civil penalties to penalise the trader for his wrong doing. The following website will help www.hmrc.gov.uk/vat/managing/international/esl/country-codes

There is one other return that has information on it in respect of sales to overseas customers and purchases from overseas suppliers and that is the VAT return itself. The trader has to put an entry for the value of supplies in Boxes 6 and 8 of the VAT return. Box 6 is for
total supplies made, excluding VAT i.e. the total sales figure, and this must include the Box 8 figure. Box 8 is the statistical box for supplies of goods and related services to the EU. Likewise the value of purchases has to be accounted for in Boxes 7 and 9 of the VAT
return. Box 7 is for total purchases made, excluding VAT i.e. the net purchases figure, and this must include the Box 9 figure. Box 9 is the statistical box for acquisitions of goods and related services from the EU.
                                                              VAT Refunds

                                                              • Under EC 8th Directive
                                                              • Under EC 13th Directive




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The 8th Directive enables a taxable person to recover VAT suffered in another EU country provided he is not already registered in that country (in which case that. country's
domestic VAT legislation would apply).

The 13th Directive requires each EU country to introduce a scheme to enable a taxable person established outside the EU to recover VAT suffered in that country provided he is not
already registered there.
And Finally ...


       “VAT is a simple tax”

 Sir Anthony Barber, Chancellor of the
                      Exchequer 1974



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            Questions

Contact Information:
Rob Whittall
Partner, Cohen & Company
Mobile: +1 216 470 5633
E-mail: rwhittall@cohencpa.com




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