Recovering import VAT can be a complex area, especially when the importer isn’t the owner of the goods. A recent First Tier Tribunal decision involving TSI Instruments Limited highlights this challenge, as the company’s £8.5m reclaim was dismissed by HMRC. The case reinforces a critical principle: ownership remains central to import VAT recovery. So, what does this mean for businesses handling goods they don’t own?
Background
In a recent First Tier Tribunal decision, TSI Instruments Limited (TSI), an importer of scientific equipment into the UK, for repair and servicing, has had its appeal dismissed for a reclaim of £8.5m import VAT.
TSI was not owner of the imported goods, but paid import VAT and reclaimed this on its VAT return. HMRC disallowed the reclaim and assessed, stating that only the owner of the goods can recover import VAT.
Case for Recovery
TSI argued that the import VAT was recoverable, due to the direct and immediate link between the costs of import and its taxable supplies, being the repair services and that VAT recovery was not limited to ownership and the party incurring the cost of importation should also be considered.
The decision
The Tribunal rejected TSI’s appeal and held that ownership is key for import VAT recovery. The Tribunal found that where TSI was not owner of the goods and the cost, or value, of the imported goods was not reflected in the price of the repair services, then there was no sufficient link between the cost of import and TSI’s taxable supplies.
Impact
This decision reinforces the often debated question of recovery of import VAT, where the owner of the goods is not paying it. Where a business imports goods it does not own, recovery of associated import VAT should be carefully considered.
Ownership is clearly key to recovery of import VAT and merely paying the costs on import will not allow associated recovery of import VAT. Any contracts should be reviewed in order to confirm how this might affect pricing.
This case gives good clarity to HMRC’s stance on import VAT recovery.
Should you have any concerns over historic or imminent import VAT recovery, or need contracts or supply chains reviewed, please contact a member of the Menzies VAT team.
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