Onward Supply Relief and VAT

VAT reliefs exist that can ease the cash flow problems faced by businesses, but they often come with conditions that must be met. Get it wrong and you could be faced with a costly VAT bill.

This is just what happened to my client which manufactures in the Far East and then imports the finished product into the UK. From here the client ships the product to other EU countries.

Background

When goods enter the EU for the first time, the importer is normally liable to pay VAT on the value of the goods. One of the exceptions to this is when the importer claims Onward Supply Relief (OSR) because the goods are sold on to a VAT-registered buyer in another EU country.

To qualify for OSR, the claimant must meet certain conditions. For example, the claimant must make EC Sales Lists.

My client is based outside the EU and did not understand all the conditions for the relief.

As a result, the business ended up with a demand for the VAT on a substantial part of the goods on which it had claimed OSR.

While it was open to the firm to claim this VAT back in the next VAT return that it made, the effect on cashflow would have had serious repercussions. Faced with this predicament, the business was referred to me by its UK lawyers.
Outcome

My initial call to the officer who issued the demand fell on deaf ears. Then I requested an independent review from another officer.

The reviewing officer cancelled the demand and the cashflow crisis was averted. I have since taken the client through all the obligations arising from its intra-EU trade and ensured that everything is in place to remain fully compliant.

The VAT position on import and export is complicated. For specialist advice please get in touch.

To discuss how this may affect your clients or your business, or to talk about a VAT issue in general, please get in touch.
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