It is averred that some people selling from overseas into the UK market (think of the preponderance of Far Eastern businesses selling via eBay or Amazon, for example) are lax about meeting their UK VAT obligations.
We don’t know whether that is true or is a foul calumny. But the government have worked out both that:
- The point at which the obligations can most effectively be monitored and policed is the point at which goods are physically handled in the UK; and
- It makes life easier for HMRC if they can get someone else to do the policing for them (and penalise them if they get it wrong)
Hence Finance (No 2) Act 2017 introduced new rules governing “Third Country Goods Fulfilment Businesses”.
Essentially, this means a business storing goods that:
- Have been imported into the UK from a country outside the EU;
- Are owned by, or stored on behalf of, someone established outside the EU;
- Are being offered for sale; and
- Haven’t previously been sold in the UK
It is therefore important to determine who has title to the goods when they are offered for sale. If the goods are still owned by the overseas seller then it is likely that all the criteria are met.
If you meet the criteria to be a Third Country Goods Fulfilment Business, you have two main obligations.
The first is to register with HMRC. The deadline for applications for registration is 30 June 2018.
The second is, broadly, to keep full records of what your customers are up to and to police their VAT compliance obligations. For example, if you have reasonable grounds to suspect that they are not meeting their obligations, you must blow the whistle to HMRC: if you subsequently suspect that they continue to default, you must stop dealing with them. Inevitably, there are penalties for failing to carry out your policing role adequately (though, happily, the legislation stops short of making you liable for your customers’ own VAT liabilities – unless of course you are also your customer’s VAT representative, but that’s another story).
Most Third Country Goods Fulfilment Businesses will have recognised themselves as such and will have applied for registration. However, we have come across a couple of situations in which businesses may not appreciate that they are within the new rules.
The first is where a UK business buys goods under arrangements involving reservation of title (so-called “Romalpa” clauses). In this case if the non-EU seller retains ownership until the goods are fully paid for, and the customer is VAT registered in the UK, then we have been informed by HMRC that they would view the UK VAT registered customer as having an obligation to register under the scheme.
The second is where a UK gallery imports into the UK works of art belonging to a non-EU owner with a view to selling on consignment. The non-EU owner retains legal title until the work of art has been sold by the UK gallery. When the sale occurs, there is an instantaneous sale by the non-EU owner to the UK gallery and an immediate onward sale by the UK gallery to the end customer. Since the UK gallery is displaying works of art held by non-EU owners, HMRC have informed us that the UK gallery would have an obligation to register under the scheme.
It should be noted that in the above cases, HMRC anticipate that there should be little additional activity or record keeping that the UK businesses are not already undertaking. However, “little” is not “no”: without doubt this is an additional obligation requirement for UK businesses who may not have viewed themselves as fulfilment businesses.
For more on Third Country Goods Fulfilment Businesses, please get in touch with your usual BKL contact or use our enquiry form.